Product costs can be distorted if a unit-based activity driver is used and
A) nonunit-based overhead costs are a significant proportion of total overhead.
B) the consumption ratios differ between unit-based and nonunit-based input categories.
C) both a and b.
D) neither a nor b.

Question

Quizplus · Accepted Answer

If nonunit-based overhead costs are a significant proportion of total overhead, the use of a unit-based activity driver may not accurately reflect the actual costs associated with the production of a product. Additionally, if the consumption ratios differ between unit-based and nonunit-based input categories, the use of a unit-based activity driver may also produce distorted product costs. Therefore, both options a and b are correct.

Product Costs Can Be Distorted If a Unit-Based Activity Driver