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4 problems red flags traditional overhead allocation

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a) List and describe four potential problems with a "traditional" overhead allocation system.
b) List and describe four "red flags" that may indicate you should consider revising your overhead allocation system.

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Solution Summary

Your tutorial is 305 words and gives you four problems with traditional (one cost driver) allocation of overhead and four red flags that your overhead allocation system could be improved.

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a) List and describe four potential problems with a "traditional" overhead allocation system.

First, traditional overhead presumes that all products use the same proportion of overhead resources and so gives some products too much overhead and others too little.

Second, traditional overhead allocates based on one cost driver, an oversimplification and an incentive to propose a cost driver for use that minimizes costs for certain managers (cherry pick the cost driver to benefit a particular product line or ...

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Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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