Which method is commonly used to allocate overhead costs to products?

Activity-based costing is commonly used to allocate overhead costs to products because it provides a more accurate method of assigning costs based on the actual activities that drive those costs. This approach recognizes that not all overhead costs are incurred evenly across all products; instead, these costs vary depending on specific activities related to producing a product.

In activity-based costing, overhead costs are first assigned to activities, which is a more precise approach. Each activity is then linked to different products based on their actual consumption of those activities. This leads to a better understanding of how resources are used, allowing for improved decision-making regarding pricing, product line management, and cost control.

This method contrasts with other approaches, such as first-in, first-out, which is related to inventory management rather than cost allocation, and standard costing, which uses predetermined costs based on expected performance. Process costing allocates costs based on the average cost incurred over a period for identical units, which does not consider the specific activities that can lead to variations in costs. Therefore, activity-based costing stands out as the method that accurately reflects the relationship between activities and overhead costs associated with products.