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Unformatted text preview: overhead allocation forces Japanese companies to watch direct labor more closely. Possibly, Japanese management believes that labor cost reduction is more of a priority than developing more accurate product costs. Why does using direct labor as the basis for overhead allocation result in lower direct labor costs for Japanese companies? Answer: Managers want to minimize the amount of overhead that is allocated to their product. If overhead is allocated based upon the amount of direct labor used, then managers can minimize the amount of overhead allocated to their product by minimizing the amount of direct labor they use....
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- Fall '11