A company that uses a traditional two stage cost allocation approach is likely to do the following.
A)Overhead allocations to high volume products will tend to be overstated while overhead allocations to low volume products will tend to be understated.
B)Overhead allocations to high volume products will tend to be understated, while allocations to low volume products will tend to be overstated.
C)Overhead allocations to large products will tend to be understat

Question

Quizplus · Accepted Answer

Traditional two-stage cost allocation often uses volume-based drivers, which can lead to high volume products absorbing more overhead than they actually consume, while low volume products absorb less, resulting in overstated overhead for high volume products and understated for low volume products.

A Company That Uses a Traditional Two Stage Cost Allocation