Traditional overhead allocation methods as opposed to activity-based allocation methods work best when:
A) there are many different volume-based cost drivers.
B) most costs are unit-level costs.
C) overhead can be estimated.
D) most costs are facility-level costs.

Question

Quizplus · Accepted Answer

Traditional overhead allocation methods work best when the majority of costs are unit-level costs. This is because the traditional method allocates overhead costs to products based on a single volume-based cost driver, typically machine hours or labor hours. When the majority of costs are unit-level costs, the traditional method provides a reasonably accurate estimate of the cost of producing each unit. However, when costs are primarily driven by activities, facilities, or resources other than labor or machines, activity-based allocation methods may provide a more accurate allocation of overhead costs.

Traditional Overhead Allocation Methods as Opposed to Activity-Based Allocation Methods