Online Accounting Dictionary

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Variable cost changes in direct proportion to changes in the level of activity (cost driver).
Volume-based costing (also called traditional costing) is a product costing system when a company allocates factory overhead costs to a single cost pool (e.g. factory overhead) and then uses volume-based cost drivers to allocate factory overhead costs to individual products or services. The company uses volume-based cost drivers that depend on number of units manufactured. Cost bases (or drivers) often used are: labor hours, machine hours, labor costs, etc.

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