Answer (D) is correct.
Allocating overhead on the basis of the number of units produced is
usually not appropriate. Costs should be allocated on the basis of some
plausible relationship between the cost object and the incurrence of the
cost, preferably cause and effect. The fixed portion of overhead costs is
incurred regardless of the level of production. When multiple products
are involved, the number of units of production may bear no relationship
to the incurrence of the allocated cost. If overhead is correlated with
machine hours but different products require different quantities of that
input, the result may be an illogical allocation. However, if a firm
manufactures only one product, this allocation method may be acceptable
because all costs are to be charged to the single product.