Stellar Packaging Products decided to use a predetermined overhead rate to apply manufacturing overhead to jobs. However, the company’s controller, Robin Simmons, is contemplating which denominator-level driver would be more appropriate: printing press machine hours or direct labor hours. Within the manufacturing process, the employees work in crews of four to six employees each. Simmons notes that there are more direct labor hours than printing press machine hours.
What would be the more appropriate basis of overhead application: printing press machine hours or direct labor hours? Given the choice of driver, are there any implications to consider for under or over applied overhead?
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