Overhead costs are typically allocated based on:

Overhead costs are typically allocated based on direct labor hours because this method reflects the relationship between the amount of labor utilized and the overhead incurred. Direct labor hours serve as a meaningful measure of how much of the company's indirect resources (like rent, utilities, and administrative salaries) are consumed during production.

Allocating overhead using direct labor hours allows for a more accurate representation of the costs associated with production. For instance, if one product takes more labor hours to produce than another, it is logical to allocate a higher portion of overhead to that product, as it likely requires more support from indirect resources.

Other methods for allocating overhead, such as units produced or sales revenue, may not directly correlate the consumption of overhead costs with the activity of producing goods. Using total assets to allocate overhead costs would also not be relevant, as it does not provide a direct link to the resources consumed during the production process. Therefore, using direct labor hours is a commonly accepted approach for more accurately assigning overhead costs in managerial accounting.