Volume-based measures may be used to apply overhead when:
A) production runs are of various sizes and overhead costs are directly proportional to the size of the run.
B) production runs are of various sizes but each run has a constant setup time.
C) purchasing costs are related to the number of purchase orders not the number of items bought.
D) material handling costs are driven by the number of materials issued to production, and components are used differentially by different products.

Question

Quizplus · Accepted Answer

Volume-based measures are most appropriate when overhead costs are directly proportional to the size of the production run. This means that the larger the run, the more overhead costs that will be incurred. Therefore, using a volume-based measure, such as direct labor hours or machine hours, to apply overhead costs would be appropriate in this situation.

Volume-Based Measures May Be Used to Apply Overhead When