Traditional product costing systems result in inaccurate product costs when:
A) direct labour increases.
B) the proportion of direct labour and raw material increases.
C) product diversity increases.
D) the proportion of direct labour and raw material increases AND product diversity increases.

Question

Quizplus · Accepted Answer

Traditional product costing systems allocate overhead costs based on a single volume-based cost driver, such as direct labor hours. When product diversity increases, these systems become less accurate because they fail to account for the different amounts of overhead resources consumed by different products.

Traditional Product Costing Systems Result in Inaccurate Product Costs When