Vanguilder combines all manufacturing overhead into a single cost pool and allocates this overhead to products by using machine hours.Activity-based costing would likely show that with Vanguard's current procedures
A)all of the company's products are undercosted.
B)the company's high-volume products are undercosted.
C)all of the company's products are overcosted.
D)the company's high-volume products are overcosteD.
E)the company's low-volume products are overcosted.

Question

Quizplus · Accepted Answer

Allocating all manufacturing overhead into a single cost pool and allocating it based on machine hours assumes that high-volume products use a proportionate amount of overhead to low-volume products, which is not always true. Activity-based costing allocates overhead based on the actual activities that drive costs, which would likely show that high-volume products are overcosted with Vanguard's current procedures.

Vanguilder Combines All Manufacturing Overhead into a Single Cost Pool