Overhead Allocation Based on Volume Alone

question 36

Multiple Choice

Overhead allocation based on volume alone:

• A) is a key aspect of the activity-based costing model.
• B) will systematically overcost high-volume products and undercost low-volume products.
• C) will systematically overcost low-volume products and undercost high-volume products.
• D) must be used for external financial reporting.

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Definitions:

Equivalent Units

A concept used in cost accounting to convert partially completed goods into an equivalent number of fully completed units for inventory valuation.

Processing Department

A division in a manufacturing operation where a specific type of processing or assembly occurs.

Conversion Costs

Combined costs of direct labor and manufacturing overhead, incurred in converting raw materials into finished goods.

Equivalent Units

A method used in cost accounting to express the amount of work done by incomplete units in terms of fully completed units.