Volume-based rates produce inaccurate product cost when:
A)A large share of factory overhead cost is not volume-based.
B)Firms produce a diverse mix of products.
C)Large volumes of a product are manufactured.
D)Both answer A and answer B are correct.
E)None of the answers above is correct.

Question

Quizplus · Accepted Answer

When a large share of factory overhead cost is not volume-based and firms produce a diverse mix of products, volume-based rates will not accurately reflect the actual cost of a product. This is because volume-based rates assume that overhead costs are incurred in proportion to the volume of product produced, which may not be the case in reality. Therefore, it is best to use alternative methods for cost allocation in such situations.

Volume-Based Rates Produce Inaccurate Product Cost When