In traditional costing systems overhead costs are allocated on volume of production or sales,.This methodology fails to take into consideration that the demand for overhead activities is also driven by which of the following?
A)Outside contracting activities.
B)Indirect labor activities.
C)Short-term labor activities.
D)Batch-related and product-sustaining activities.

Question

Quizplus · Accepted Answer

Batch-related and product-sustaining activities impact the demand for overhead costs, but are not directly related to the volume of production or sales. Therefore, a traditional costing system that only considers volume of production or sales cannot accurately allocate overhead costs.

In Traditional Costing Systems Overhead Costs Are Allocated on Volume