Which of the following statements associated with traditional overhead allocation is true?
A) A traditional overhead allocation method is the most accurate in automated environments with diverse products.
B) A traditional overhead allocation method can also be referred to as activity-based costing.
C) A traditional overhead allocation method provides the most accurate product cost information.
D) A traditional overhead allocation method usually uses one or two volume-based cost drivers.

Question

Quizplus · Accepted Answer

Traditional overhead allocation methods typically use volume-based cost drivers, such as direct labor hours or machine hours, to allocate overhead costs to products. While they may be simple to implement, they can result in inaccurate product cost information, particularly in more complex and diverse production environments. Activity-based costing (ABC) is a more accurate method of overhead allocation that considers multiple cost drivers and activities that consume resources. Therefore, option B - "A traditional overhead allocation method can also be referred to as activity-based costing" is incorrect. Option A - "A traditional overhead allocation method is the most accurate in automated environments with diverse products" and option C - "A traditional overhead allocation method provides the most accurate product cost information" are incorrect because traditional overhead allocation methods are less accurate compared to activity-based costing.

Which of the Following Statements Associated with Traditional Overhead Allocation