Eaton Company uses activity-based costing to allocate overhead costs to products.When figuring the cost of ordering raw materials,which of the following is likely the best cost driver for this activity?
A)Number of orders placed.
B)Weight of the parts ordered.
C)Square footage of the purchasing department area.
D)Direct labor cost.
E)None of the answer choices is correct.

Question

Quizplus · Accepted Answer

Ordering raw materials is an activity that consumes resources such as clerical work, communication, and paperwork. The best cost driver for this activity is the number of orders placed because it measures the frequency of activities that generate overhead costs. The more orders placed, the higher the overhead costs incurred by the purchasing department. Therefore, A) is the best choice.

Eaton Company Uses Activity-Based Costing to Allocate Overhead Costs to Products.When