Which method of allocation probably best estimates actual overhead costs used? Why?
A)Single direct labour-hours cost driver because it is the easiest to analyse and interpret.
B)Three activity-cost drivers because they best reflect the relative consumption of resources.
C)Single direct labour-hours cost driver because it is best to allocate total costs uniformly to individual jobs.
D)Three activity-cost drivers because product costs can be significantly cross-subsidised.

Question

Quizplus · Accepted Answer

Three activity-cost drivers because they best reflect the relative consumption of resources. This method provides a more accurate and fair allocation of overhead costs by identifying and assigning costs to specific activities that consume resources. It considers the different levels of resource consumption and allocates costs accordingly, leading to more accurate product costs.

Which Method of Allocation Probably Best Estimates Actual Overhead Costs