Which method uses a traditional overhead rate based on a single driver (for example, direct labor hours) to allocate overhead?

• A. Traditional Overhead Rate Based on Direct Labor Hours
• B. Activity-Based Costing
• C. Standard Overhead Allocation
• D. Variable Costing

Answer: (A)

The main idea here is allocating overhead with a single, plant-wide rate tied to one activity driver, commonly direct labor hours. You estimate total overhead and the total amount of the driver (like direct labor hours), compute an overhead rate = total overhead / total driver units, and then apply that rate to products by multiplying it by each product’s driver usage (e.g., its direct labor hours). This simple, traditional approach assumes overhead costs correlate with that single driver across all products, which is why it’s called the traditional overhead-rate method based on a single driver.

Activity-Based Costing differs by using multiple cost pools and drivers to better reflect how different products consume overhead. Standard overhead allocation is a related concept but can involve predetermined rates using standard costs rather than actuals, and Variable costing isn’t about the allocation method at all but about classifying fixed vs variable costs for external reporting.