In allocating fixed costs to products in activity-based costing,
A)direct labor hours should always be used as the allocation base.
B)a company should use the same allocation base that it uses for variable costs.
C)a cost driver that is not volume-related should be used.
D)machine hours should always be used.

Question

Quizplus · Accepted Answer

In activity-based costing, it is best to use a cost driver that is closely related to the fixed cost being allocated, rather than using direct labor hours or machine hours as a proxy for allocation. This helps ensure that the costs are being allocated more accurately and fairly.

In Allocating Fixed Costs to Products in Activity-Based Costing