Volume-based rates produce inaccurate product cost when:
A)A large share of factory overhead cost is volume-based.
B)Firms produce a diverse mix of products.
C)Large volumes of a product are manufactured.
D)Firms have a small number of homogeneous products.

Question

Quizplus · Accepted Answer

Volume-based rates assume that all products use the same amount of overhead costs per unit. However, when a firm produces a diverse mix of products, some products may require more overhead costs than others due to differences in production processes, materials, and complexity. Using volume-based rates will therefore result in inaccurate product costs, with some products being overpriced and others underpriced.

Volume-Based Rates Produce Inaccurate Product Cost When