Traditional costing systems tend to misallocate overhead to high-volume standard products

Question

Quizplus · Accepted Answer

Traditional costing systems allocate overhead based on direct labor hours, machine hours, or material costs. This approach can lead to misallocation of overhead to high-volume standard products, and it does not account for the complexity of production processes, which may require a different level of overhead allocation. Consequently, traditional costing systems may undercost complex, low-volume products and overcost high-volume standard products.

Traditional Costing Systems Tend to Misallocate Overhead to High-Volume Standard