Basing Overhead Allocation Solely on Volume

question 14

Multiple Choice

Basing overhead allocation solely on volume

• A)will undercost high-volume products and overcost low-volume products.
• B)will overcost high-volume products and undercost low-volume products.
• C)is the sole basis of the activity-based costing model.
• D)All of the above are correct.

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Definitions:

TR/q

Represents Total Revenue divided by quantity, a formula used to calculate average revenue per unit sold.

Short Run

A period during which at least one of a firm's inputs is fixed and cannot be changed.

Average Total Cost

The total cost of production divided by the quantity of output produced, it includes all variable and fixed costs.

Fixed Capital

Long-term assets used in production, such as buildings, machinery, and equipment, which are not easily converted into cash.