Traditional cost systems allocated overhead costs using a single allocation base, such as direct Obj. 1 labor hours, direct labor costs, or machine hours. These simple allocation systems were appropriate because overhead costs typically did not represent a significant proportion of total manufacturing costs. Overhead costs were traced to a product as shown:

Assume the traditional method of overhead allocation is no longer relevant because of changes in manufacturing technology and support-related overhead costs. Significant activities and allocation bases are as follows:

Prepare a sketch to illustrate the application of overhead using relevant allocation bases. Then, explain why cost systems evolved in response to changes in manufacturing systems.

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Overhead Costs Products Overhead cost per direct labor hour