Final answer:
Allocation bases in manufacturing primarily include A. machine hours, B. units of product, C. direct labor cost, and E. direct labor hours.
Step-by-step explanation:
The student's question pertains to allocation bases commonly used in the manufacturing industry. Allocation bases are metrics used to distribute costs among different products, activities, or departments. Widely used allocation bases in manufacturing include:
- Machine hours: This is used to assign costs based on the amount of time a machine is operated.
- Units of product: This allocates costs according to the number of units produced.
- Direct labor cost: It assigns costs in proportion to the direct labor expenses incurred.
- Direct labor hours: This bases the allocation of costs on the hours of direct labor used in production.
Allocation bases such as product revenue and non-manufacturing costs are not typically used as bases for allocating manufacturing costs. Instead, product revenue is more related to sales activities, and non-manufacturing costs are not directly tied to the production process.
Considering the aforementioned scenario where a firm can produce an item with various combinations of labor and machinery, a firm might decide to opt for a production plan that involves fewer labor hours and a higher use of machines, especially when faced with higher labor costs due to union negotiations. For example, if the labor cost increases to $24 an hour, it's economically advantageous for the company to reduce labor hours and increase reliance on machinery.