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 can result in high-volume products being allocated a higher proportion of the overhead costs than low-volume products, even if the actual cost of production for each product is not significantly different. This leads to over-costing of high-volume products and under-costing of low-volume products. Therefore, the statement is true.

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