Vanguilder combines all manufacturing overhead into a single cost pool and alloc

Question

Vanguilder combines all manufacturing overhead into a single cost pool and allocates this overhead to products by using machine hours. Activity-based costing would likely show that with Vanguard's current procedures that:

all of the company's products are undercosted.

the company's high-volume products are undercosted.

all of the company's products are overcosted.

the company's high-volume products are overcosted.

the company's low-volume products are overcosted.

all of the company's products are undercosted.

the company's high-volume products are undercosted.

all of the company's products are overcosted.

the company's high-volume products are overcosted.

the company's low-volume products are overcosted.

Explanation / Answer

Answer is the company's high volume products are undercosted.

Explanation:

This is due to the fact that overheads are applied in the ratio of machine hours used in the manufacturing of product which is less than proportionate when produced in the large quantity. Hence, lesser overheads are absorbed on te products. Therefore, such high volume products are undercosted in the traditional method of OH absorption.

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