Job-order costing systems often use allocation bases that do not reflect how jobs actually use overhead resources.

Question

Quizplus · Accepted Answer

Job-order costing systems typically use predetermined overhead rates, which are based on an allocation base such as direct labor hours or machine hours. However, these allocation bases may not always accurately reflect how overhead costs are actually incurred by the jobs. For example, a job may require more setup time or engineering costs than another job with the same number of direct labor hours, but if the predetermined overhead rate is based solely on direct labor hours, the actual overhead costs may be misallocated.

Job-Order Costing Systems Often Use Allocation Bases That Do Not