Which best describes the flow of overhead costs in an activity-based costing system?
A)Overhead costs $\rightarrow$ direct labor cost or hours $\rightarrow$ products
B)Overhead costs $\rightarrow$ products
C)Overhead costs $\rightarrow$ activity cost pools $\rightarrow$ cost drivers $\rightarrow$ products
D)Overhead costs $\rightarrow$ machine hours $\rightarrow$ products

Question

Quizplus · Accepted Answer

In an activity-based costing system, overhead costs flow from the cost pools, which are based on activities that consume resources, to the cost drivers that measure the use of these activities, and ultimately to the products that consume these activities. Direct labor cost or hours or machine hours are not necessarily the only drivers of overhead costs, as activities like setup, inspection, and material handling may also consume resources and need to be accounted for in the cost allocation process.

Which Best Describes the Flow of Overhead Costs in an Activity-Based