If substantial batch-level or product-level costs exist, then overhead allocation based on a measure of volume such as direct labor-hours alone: is a key aspect of the activity-based costing model. must be used for external financial reporting since activity-based costing cannot be used for external reporting purposes. will systematically overcost low-volume products and undercost high-volume products. will systematically overcost high-volume products and undercost low-volume products.

Doogan corporation makes a product with the following standard costs: standard quantity or hours standard price or rate direct materials 2.0 grams $ 7.00 per gram direct labor 1.6 hours $ 12.00 per hour variable overhead 1.6 hours $ 6.00 per hour the company produced 5,000 units in january using 10,340 grams of direct material and 2,320 direct labor-hours. during the month, the company purchased 10,910 grams of the direct material at $7.30 per gram. the actual direct labor rate was $12.85 per hour and the actual variable overhead rate was $5.80 per hour. the company applies variable overhead on the basis of direct labor-hours. the direct materials purchases variance is computed when the materials are purchased. the materials quantity variance for january is: