In Allocating Variable Costs to Products

question 98

Multiple Choice

In allocating variable costs to products,

• A)a volume-based cost driver should be used.
• B)direct labor hours should always be used as the allocation base.
• C)a company should use the same allocation base that it uses for fixed costs.
• D)a company should never use more than one cost driver.

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Definitions:

Variable Manufacturing Overhead

These are costs that vary with production volume, such as utilities for the manufacturing plant, but cannot be directly traced to specific units of product.

Direct Labor-Hours

Direct labor-hours are the total hours worked by employees directly involved in the production of goods or services, used for costing and operational efficiency assessment.

Predetermined Overhead Rate

calculates an estimated overhead cost per unit of activity, aiding in assigning indirect costs to products or services.

Plantwide Predetermined Overhead Rate

A single overhead rate calculated for an entire manufacturing plant, applied to all units produced irrespective of department or product differences.