Traditional single-allocation-base cost systems tend to over-cost high-volume products and under-cost low-volume products.

Question

Quizplus · Accepted Answer

Traditional single-allocation-base cost systems allocate overhead costs based on a single cost driver, such as direct labor hours or machine hours. This method tends to over-allocate overhead costs to high-volume products that use more of the cost driver and under-allocate overhead costs to low-volume products that use less of the cost driver. As a result, high-volume products may appear more expensive than they actually are, while low-volume products may appear more profitable than they actually are.

Traditional Single-Allocation-Base Cost Systems Tend to Over-Cost High-Volume Products and Under-Cost