What cost or resource that varies among products, could have been included in this analysis?

This question focuses on analyzing overhead allocations, and is based on Middlesex Products Company Exhibit 8-1 on p. 173 of the text. Overhead allocations are often problematical because the basis for the allocations is typically some method that is simple, uniform and low cost, but rarely accurately represents how the various products actually use and drive overhead costs. From an accounting standpoint all the costs are allocated (so-called ‘full absorption’) but the issue is that, if it used for management decision making, what truly is a low profit product may be promoted, while a more profitable product may be discontinued. The author shows us several analyses of three products or brands that belong to Middlesex Manufacturing. The first analysis shows each product’s sales less the direct costs to calculate each product’s gross margin. All gross margins are positive. Then the overhead is allocated, which seems simple enough. However, on what basis should it be allocated? Three examples are given: revenue, units sold and direct labor, all creating different spreads of the overhead costs. Which is correct? The author does not provide a definitive answer. After reviewing the analyses and author’s comments closely, which of the three do you think would be best and why, or can you think of other better alternatives? What are they and why do you think they are better? The chapter is finished with one more analysis, of Product D which is being considered as a possible addition to the company’s products. Using the units sold allocation basis, he proves it would be rejected because the full allocation basis return would be a loss. In a second analysis he shows that, on the other hand, a marginal analysis, with no overhead allocation under the theory that the overhead was already fully absorbed by the other three products, shows the addition of Product D would increase total company profit by $100,000, pretax. In the Product D analysis, which point of view is correct and why? What cost or resource that varies among products, could have been included in this analysis? Hint, see Exhibit 7-2 on p. 166. Text Book – Finance and Accounting for Nonfinancial Managers Third Edition by Edward Fields.