In allocating variable costs to products,
A)a volume-based cost driver should be used.
B)direct labor hours should always be used as the allocation base.
C)a company should use the same allocation base that it uses for fixed costs.
D)a company should never use more than one cost driver.

Question

Quizplus · Accepted Answer

Allocating variable costs to products requires a cost driver, which is a factor that causes the variable cost to be incurred. A volume-based cost driver, such as units produced or machine hours used, is a common choice for allocating variable costs because it is often the most significant factor in driving variable costs. Direct labor hours may not always be a relevant cost driver if the variable cost is not primarily driven by labor. Using the same allocation base as fixed costs is not necessary or relevant for allocating variable costs. A company may use multiple cost drivers if they are both relevant and significant in driving the variable cost.

In Allocating Variable Costs to Products