Volume measures serve as good cost drivers for allocating variable overhead costs because of the causal relationship that exists between those drivers and variable costs.

Question

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Volume measures, such as direct labor hours or machine hours, have a direct relationship with variable overhead costs. As the volume of production increases, variable overhead costs also increase. Therefore, volume measures are a good choice for cost drivers for allocating variable overhead costs.

Volume Measures Serve as Good Cost Drivers for Allocating Variable