Overhead allocation differs between traditional approaches and ABC primarily by:?

Question

A. The number of overhead accounts used.
B. The number of cost pools used.
C. The number of cost drivers used.
D. The number of products produced.
E. The number of products sold.

Answer 1

C.The number of cost drivers used.

The traditional method determines the cost allocation using direct labor dollars only, so a product with high direct labor dollars gets allocated more of the overhead costs than a product with low direct labor dollars. The number of orders, setups, or tests the product actually uses does not impact the allocation of overhead costs when direct labor dollars are used to allocate overhead.

ABC provides a way to allocate costs more accurately when overhead costs are not incurred at the same rate as direct labor dollars. The more activities identified, the more complex the costing system becomes.