Traditional-based product costing uses which of the following procedures?
A)Overhead costs are traced to departments, then costs are traced to products.
B)Overhead costs are traced to activities, then costs are traced to products.
C)Overhead costs are traced directly to products.
D)All overhead costs are expensed as incurred.

Question

Quizplus · Accepted Answer

Traditional-based product costing first traces overhead costs to the departments that incur them and then allocates those costs to the products based on predetermined allocation rates. This method assumes that the overhead costs are caused by the activities of the departments rather than directly by the products themselves. Option B refers to activity-based costing (ABC) which uses a different approach by tracing overhead costs to activities that consume them and then assigns those costs to products based on the activities they require. Option C is not practical as it would be difficult to directly trace all overhead costs to individual products, and option D is incorrect as it expensed all overhead costs without allocating them to products for appropriate cost accounting.

Traditional-Based Product Costing Uses Which of the Following Procedures