Question: Mannon Companys accountant exclaimed, Our cost accounting system allocates overhead based on direct labor hours, but our overhead costs appear to be more related to

Mannon Company’s accountant exclaimed, “Our cost accounting system allocates overhead based on direct labor hours, but our overhead costs appear to be more related to setup activities than to the use of direct labor. It seems as though our costing system allocates too much cost to large batches of product and not enough cost to small batches.” Explain what she means.

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