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Essay text:
The consulting company used 435% of direct labor costs in 1987 for their study; the budgeted was actually 437% (OH/DL=107,954/24,682). A similar percentage applies in the following year (109890/25294=434.5%). However in the next two years, after the outsourcing of oil pans and mufflers was enacted, the allocation of overhead increased to 577% (78,157/13,537) in 1989 and 563% (79,393/14,102) in 1990. Overhead decreased by approximately $30,000 due to the outsourcing, and direct labor decreased by approximately $12,000. The changed rates are due to the fact that the overhead reported in the accounts is not based solely on variable labor, but rather has other (including fixed) components...
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