The following statements describe various aspects of overhead costs and the roles of cost pools and cost drivers in the allocation of overhead.
a. Overhead costs cause cost drivers.
b. In traditional manufacturing environments, most overhead costs are directly related to production activities.
c. Overhead rates are calculated by dividing manufacturing overhead costs by the volume of cost pool activity.
d. Companies that are labor intensive are likely to allocate overhead costs such as utilities expense based on direct labor hours.
e. More overhead costs in a just-in-time environment are direct in nature as opposed to indirect.
f. A “good” allocation base is one that drives the incurrence of overhead costs.
g. Companies generally allocate overhead equally to all products produced during a given period of time.
Indicate whether each of the statements in exercise 33 is true or false.