When traditional production volume based overhead allocations are made, rather than activity based allocations,
A)The unit costs of high volume and large size products tend to be overstated, while the unit cost of low volume and small products tend to be understated.
B)The unit costs of high volume and large size products tend to be understated, while the unit cost of low volume and small products tend to be overstated.
C)The unit costs of high volume and small products tend to be overstated, while the unit costs of low volume and large products is understat

Question

Quizplus · Accepted Answer

When traditional production volume based overhead allocations are made, rather than activity based allocations, the unit costs of high volume and large size products tend to be overstated, while the unit cost of low volume and small products tend to be understated. This is because the overhead costs are allocated based on the volume of production, rather than the actual activities that are performed. As a result, products that are produced in high volumes will have a higher overhead cost allocated to them, even if they do not actually require more overhead resources. Conversely, products that are produced in low volumes will have a lower overhead cost allocated to them, even if they actually require more overhead resources.

When Traditional Production Volume Based Overhead Allocations Are Made, Rather