Using a volume-based overhead rate based on machine hours to assign manufacturing overhead to a product line that uses relatively few machine hours is likely to:
A)Overapply overhead to the product line.
B)Underapply overhead to the product line.
C)Understate direct labor costs.
D)Overstate direct labor costs.
E)Either over- or under-apply overhead to the product line depending on many other factors.

Question

Quizplus · Accepted Answer

Using a volume-based overhead rate based on machine hours will likely underapply overhead to a product line that uses relatively few machine hours, as the overhead costs are spread over fewer hours, resulting in less overhead being allocated to that product line.

Using a Volume-Based Overhead Rate Based on Machine Hours to Assign