Product costs can be distorted if a unit-based cost driver is used and
A) nonunit-based overhead costs are a significant proportion of total overhead
B) the consumption ratios differ between unit-based and nonunit-based input categories
C) both a and b
D) neither a nor b

Question

Quizplus · Accepted Answer

Nonunit-based overhead costs may have different consumption ratios than unit-based inputs, leading to distorted product costs. If nonunit-based overhead costs are a significant proportion of total overhead, this further exacerbates the distortion. Therefore, both options a and b are correct.

Product Costs Can Be Distorted If a Unit-Based Cost Driver