Traditional cost systems with a single-allocation base tend to overcost high-volume products and undercost low-volume products as compared to activity-based costing systems.

Question

Quizplus · Accepted Answer

Traditional cost systems allocate overhead costs using a single allocation base, such as direct labor hours or machine hours, which may result in overcosting high-volume products and undercosting low-volume products. In contrast, activity-based costing systems allocate overhead costs based on the activities that drive those costs, providing a more accurate picture of the cost of producing each product.

Traditional Cost Systems with a Single-Allocation Base Tend to Overcost