Overhead costs are allocated to cost objects in an activity-based costing system in the following manner:
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 to activities, then costs are traced to departments and then allocated to products.
D)Overhead costs are traced from resources to cost objects.
E)None of the above.

Question

Quizplus · Accepted Answer

In activity-based costing system, overhead costs are traced to activities and then the costs are traced to products. This method allows for a more accurate allocation of overhead costs as it identifies the specific activities that drive overhead costs rather than allocating them based on indirect factors such as labor or machine hours.

Overhead Costs Are Allocated to Cost Objects in an Activity-Based