Final answer:
Before automation, overhead was allocated based on direct labor costs. With automation, overhead allocation methods have become more sophisticated.
Step-by-step explanation:
Before automation became more prevalent, overhead was often calculated and allocated as a function of direct labor costs or direct labor hours. This was the case because direct labor was a significant cost factor in production and was often used as a proxy for estimating other cost drivers. For example, if labor costs were high for a particular product, it was assumed that the overhead costs would also be high for that product.
However, with the advent of automation and advanced technology, the relationship between direct labor and overhead costs has changed. Automation has reduced the reliance on labor-intensive processes and has made it possible to allocate overhead costs based on other factors such as machine usage or production volume.
Today, overhead costs are typically allocated using more sophisticated methods that take into account multiple cost drivers and use activity-based costing techniques. These methods provide a more accurate and nuanced allocation of overhead costs, taking into consideration the specific activities and resources that contribute to the generation of overhead expenses.