Question

To assign overhead costs to each product, the company:_____.

a. multiplies the activity-based overhead rates per cost driver by the number of cost drivers expected to be used per product.
b. assigns the cost of each activity cost pool in total to one product line.
c. multiplies the overhead rate by the number of direct labor hours used on each product.
d. multiplies the rate of cost drivers per estimated cost for the cost pool by the estimated cost for each cost pool.

Answer 1

a. multiplies the activity-based overhead rates per cost driver by the number of cost drivers expected to be used per product.

Step-by-step explanation:

Costing is the measurement of the cost of production of goods and services by assessing the fixed costs and variable costs associated with each step of production.

Generally, an activity-based costing uses multiple cost pools such as manufacturing cost or customer services and multiple cost drivers such as direct labor hours worked, number of changes used in engineering department, etc.

Cost pool is simply the amount of money spent by a firm on a particular activity.

Hence, to assign overhead costs to each product, the company multiplies the activity-based overhead rates per cost driver by the number of cost drivers expected to be used per product.

In activity-based costing, the activity rate for an activity cost pool is calculated by using the following formula;

Activity rate = total overhead cost/activity for the activity cost pool.