When can product costs be distorted if a unit-based activity driver is used?
A)when non-unit-based overhead costs are an insignificant proportion of total overhead
B)when the consumption ratios differ between unit-based and non-unit-based input categories
C)when the amount of overhead that each product consumes is insignificant
D)when the degree of product diversity produced is small

Question

Quizplus · Accepted Answer

Unit-based activity drivers assume that all products consume overhead costs in the same ratio based on the number of units produced or sold. However, if there are non-unit-based overhead costs (such as setup costs or inspection costs), using a unit-based activity driver can distort product costs. This is because the consumption ratios between unit-based and non-unit-based input categories may differ, resulting in some products being assigned a higher or lower portion of overhead costs than they actually consume. The other answer choices are incorrect because they do not address the issue of non-unit-based overhead costs and how they can distort product costs with a unit-based activity driver.

When Can Product Costs Be Distorted If a Unit-Based Activity