You often provide advice to Maria Graham, a client who is interested in diversifying her company. Maria is considering the purchase of a small manufacturing company that assembles and packages its many products by hand. She plans to automate the factory and her projections indicate that the company will once again be profitable within two to three years. During her review of the company's records, she discovered that the company currently uses direct labor-hours to allocate overhead to its products. Because of its simplicity, Maria hopes that this approach can continue to be used.
Required:
Write a memorandum to Maria that addresses whether or not direct labor should continue to be used as an allocation base for overhead.