Chapter 4, Problem 1Q

What is the difference between a volume-based cost driver and a non-volume-based cost driver?

To determine

Concept introduction:

Activity Based Costing (ABC):

ABC costing method is generally used to allocate the overhead costs to the product using activity rates differently for each activity. Unlike traditional method, the ABC costing method does not use the plant wide overhead rate, rather it used different allocation rate for different production activity. To Indicate:

The difference between volume based cost drivers and non volume bases cost drivers

Answer to Problem 1Q

Volume based cost drivers take number of units as the allocation basis but non volume based cos drivers take activities as allocation basis.

Explanation of Solution

ABC costing method is generally used to allocate the overhead costs to the product using activity rates differently for each activity. Unlike traditional method, the ABC costing method does not use the plant wide overhead rate, rather it used different allocation rate for different production activity.

Volume based cost drivers take number of units as the allocation basis but non volume based cost drivers take activities as allocation basis like inspection activity, setup activity etc..