Question

Using direct-labor hours or another volume based cost driver to assign overhead ______. Multiple select question. may result in overcharging customers for products may result in selling products at a loss ignores other significant causes of overhead can badly distort labor and material costs

Answer 1

• may result in overcharging customers for products
• may result in selling products at a loss
• ignores other significant causes of overhead

Step-by-step explanation:

If the volume based measure leads to overheads being higher than they should be, customers may be overcharged because the overestimated overhead would be added to the cost of the product.

On the other hand, the volume based measure might lead to overheads being underestimated. When this happens, the business might make a loss because their costs are higher than their revenue and they did not know.

Using these volume based measures also assumes that only volume could impart overheads when in fact there are other significant causes such as machinery costs.