In allocating fixed costs to products in activity-based costing,
A)direct labor hours should always be used as the allocation base.
B)a company should use the same allocation base that it uses for variable costs.
C)a cost driver that is not volume-related should be used.
D)machine hours should always be useD.

Question

Quizplus · Accepted Answer

In activity-based costing, cost drivers that are not volume-related should be used to allocate fixed costs to products. This is because fixed costs do not vary with the level of production and using volume-related drivers such as direct labor hours or machine hours may result in the over or under allocation of these costs to certain products. Instead, non-volume related cost drivers such as number of setups, number of orders processed or number of inspections, should be used to determine the proportion of fixed costs that should be assigned to each product.

In Allocating Fixed Costs to Products in Activity-Based Costing