The use of unit-based activity drivers to assign costs can result in significant cost distortions only if:
A)overhead costs are a small percentage of total manufacturing costs.
B)direct material costs are a significant percentage of total manufacturing costs.
C)overhead costs are a significant percentage of total manufacturing costs.
D)direct material costs are a small percentage of total manufacturing costs.

Question

Quizplus · Accepted Answer

If overhead costs are a significant percentage of total manufacturing costs, using unit-based activity drivers to assign costs may result in significant cost distortions. This is because the unit-based activity driver assumes that overhead costs are incurred in proportion to the volume of units produced, which may not be accurate if overhead costs vary significantly depending on the level of production or the type of product being manufactured. If overhead costs are a small percentage of total manufacturing costs, the impact of using unit-based activity drivers may be less significant. The percentage of direct material costs to total manufacturing costs does not necessarily impact the distortion caused by using unit-based activity drivers.

The Use of Unit-Based Activity Drivers to Assign Costs Can