Overhead allocation based solely on a measure of volume such as direct labor-hours:

A) is a key aspect of the activity-based costing model.
B) will systematically overcost high-volume products and undercost low-volume products.
C) will systematically overcost low-volume products and undercost high-volume products.
D) must be used for external financial reporting.

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Caleb Putnam · Accepted Answer

Final Answer : B, Explanation :  Overhead allocation based solely on a measure of volume such as direct labor-hours will systematically overcost high-volume products and undercost low-volume products, as it assumes that overhead costs are driven solely by direct labor hours, which may not be the case. Activity-based costing takes into account the different activities and resources required to produce different products, and therefore provides a more accurate picture of overhead cost allocation. The use of direct labor-hours for overhead allocation may be required for external financial reporting purposes, but it is not the most accurate method for internal decision-making.

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