Volume-Based Costing Allocates Indirect Product Costs Based on the Volume $\begin{array} {cc } & { \text { High-Volume Products } } & { \text { Low-Volume Products } } \\\end{array}$

question 119

Multiple Choice

Volume-based costing allocates indirect product costs based on the volume of output, using such allocation bases as direct labor hours, machine hours, or the amount of direct material used in the production process. Activity-based costing (ABC) has consistently shown that volume-based costing ________ the cost of high-volume products and ________ the cost of low-volume products.
$\begin{array} {cc } & { \text { High-Volume Products } } & { \text { Low-Volume Products } } \\\end{array}$
A. $\begin{array} {cc } &&& \text { Overstates } &&&&&& \text { Overstates } \\\end{array}$
B. $\begin{array} {cc } &&& \text { Overstates } &&&&&& \text { Understates } \\\end{array}$
C. $\begin{array} {cc } &&& \text { Understates } &&&&&& \text { Overstates } \\\end{array}$
D. $\begin{array} {cc } &&& \text { Understates } &&&&&& \text { Understates } \\\end{array}$

• A) Option A
• B) Option B
• C) Option C
• D) Option D

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Definitions:

Rights Offering

A proposition by a company to its existing shareholders to purchase additional shares at a discounted price before the company offers it to the public.

Market Price

The current monetary value assigned to buying or selling assets or services in a marketplace.

Rights Offering

A type of financial offering in which a company gives its existing shareholders the right to buy additional shares at a discounted price before the public.

Subscription Price

The cost for purchasing a subscription to a service or product, typically charged on a recurring basis.