Overhead costs are assigned to each product based on ________.

Question

BlackTom AI · Accepted Answer

Overhead is allocated on the basis of cost drivers: the more a product consumes the activity that drives overhead, the larger its share of overhead costs.

Relevant knowledge points and concepts:
- Overhead costs are indirect costs (e.g., factory rent, utilities, setup costs) that cannot be traced directly to a single product.
- A cost driver is an activity measure that causes or correlates with the incurrence of overhead (e.g., machine hours, setup hours, inspection counts).
- Allocation assigns the overhead pool to products in proportion to each product’s use of the chosen cost driver; activity-based costing (ABC) formalizes this.

Step-by-step reasoning and calculation process:
1. Identify the overhead cost pool to allocate (sum of indirect costs).
2. Select an appropriate cost driver that best explains variability in that overhead pool (e.g., machine hours).
3. Compute the overhead allocation rate: Allocation rate = Total overhead cost / Total units of the cost driver.
   - Example: If total overhead = $100,000 and total machine hours = 10,000 MH, rate = $100,000 ÷ 10,000 MH = $10 per MH.
4. Allocate to a product: Product allocation = Allocation rate × Product’s usage of the cost driver.
   - Example: If Product A uses 200 MH, allocated overhead = $10 × 200 = $2,000.
5. Thus each product receives overhead in proportion to its consumption of the driver.

Why the correct answer is correct:
Allocating overhead based on the proportion of a product’s use of the cost driver provides a cause-and-effect allocation, increasing accuracy and fairness. The phrase “proportion of that product’s use of the cost driver” exactly describes this rate × usage allocation method.

Why other common alternatives are less precise:
- Allocating simply by number of units or equally ignores differing resource consumption.
- Arbitrary or blanket allocations (e.g., equal split) do not reflect actual driver usage and can distort product costs.

Conclusion: Overhead costs are assigned based on the proportion of that product’s use of the cost driver, which matches the provided answer.

Overhead costs are assigned to each product based on ________.单项选择题

类似问题

Which of the following would be inappropriate as an allocation base for calculating factory overhead rates?

Which of the following are actual factory overhead allocation methods?

Using multiple department factory overhead rates instead of a single plantwide factory overhead rate

Assigning indirect costs to specific jobs is completed by which of the following?

What is the most practical way of disposing of the over or under applied overhead?

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