Traditional Costing Systems Employ Multiple Allocation Rates for Manufacturing Overhead

question 225

True/False

Traditional costing systems employ multiple allocation rates for manufacturing overhead costs,but an activity-based costing system uses only one rate for allocating manufacturing overhead costs.

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Definitions:

Direct Labor-Hours

The sum of hours contributed by workers directly participating in the creation of a product or the execution of a service.

Variable Manufacturing Overhead

Costs in manufacturing that vary directly with the level of production output, such as utilities and raw materials.

Fixed Manufacturing Overhead

Costs associated with manufacturing that remain constant regardless of the level of production, such as rent and salaries of managerial staff.

Machine-Hours

A measurement unit used in accounting and manufacturing to allocate costs to products based on the number of hours machines are operated during the production process.