Ideally,if a department has more than one cost-allocation base for overhead costs,it should ________.
A) use only one cost-allocation base with the highest amount of overhead costs
B) use only two cost-allocation bases with the highest amount of overhead costs
C) accumulate a separate cost pool for each cost-allocation base and put the overhead costs into the appropriate cost pool
D) determine the budgeted overhead rate using the budgeted overhead costs and the budgeted amount of only one cost driver

Question

Quizplus · Accepted Answer

When a department has more than one cost-allocation base for overhead costs, it should accumulate a separate cost pool for each cost-allocation base and put the overhead costs into the appropriate cost pool. This method is called activity-based costing (ABC) and it provides more accurate product costing information than traditional costing methods that use only one cost driver. Using multiple cost pools ensures that overhead costs are allocated based on the different activities that consume them, rather than using a single allocation method that may not accurately reflect the activity levels of each cost driver.

Ideally,if a Department Has More Than One Cost-Allocation Base for Overhead