Overhead allocation based solely on a measure of volume such as direct labor-hours:
A) is a key aspect of the activity-based costing model.
B) will systematically overcost high-volume products and undercost low-volume products.
C) will systematically overcost low-volume products and undercost high-volume products.
D) must be used for external financial reporting.

Question

Quizplus · Accepted Answer

Overhead allocation based solely on a measure of volume such as direct labor-hours will systematically overcost high-volume products and undercost low-volume products. This is because high-volume products will use more direct labor-hours and therefore be allocated more overhead, even if they do not necessarily consume more resources. On the other hand, low-volume products may use fewer direct labor-hours but may still consume a significant amount of resources, leading to undercosting.

Overhead Allocation Based Solely on a Measure of Volume Such