Which of the following statements is true regarding cross subsidies?
A) They occur when factory workers are trained to work on many different machines.
B) They occur when high-volume products are assigned more than their fair share of overhead costs.
C) They occur when high-volume products have more direct material and direct labor costs than overhead costs.
D) They occur when more than one cost driver can be determined for a particular overhead cost item.

Question

Quizplus · Accepted Answer

Cross subsidies occur when one product or service is charged a higher price to compensate for a lower price for another product or service. When high-volume products are assigned more than their fair share of overhead costs, they are being subsidised by low-volume products, which are charged a higher overhead cost. This is an example of cross subsidies. A, C, and D are not directly related to cross subsidies.

Which of the Following Statements Is True Regarding Cross Subsidies