In Allocating Fixed Costs to Products in Activity-Based Costing

question 32

Multiple Choice

In allocating fixed costs to products in activity-based costing,

• A)direct labor hours should always be used as the allocation base.
• B)a company should use the same allocation base that it uses for variable costs.
• C)a cost driver that is not volume-related should be used.
• D)machine hours should always be used.

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Definitions:

Processing Department

A division within a company where raw materials are transformed into finished products through a series of operations or processes.

Equivalent Units

A concept used in manufacturing and product costing that represents a partial unit of production, making it easier to quantify and cost incomplete production.

Step-Down Method

An allocation method used in cost accounting to distribute overhead costs to various departments in a sequential order based on the level of service provided.

Service Department Costs

Costs incurred by departments that do not directly generate revenue, but support those that do.