What is the method used to assign overhead and indirect costs to products or services?

The method used to assign overhead and indirect costs to products or services is Activity-Based Costing (ABC). This approach takes a more refined view of costs by recognizing the relationship between activities, costs, and products. ABC identifies various activities within an organization and assigns costs to those activities based on actual usage. This means that costs are traced more accurately to the products that consume those activities, allowing for a better understanding of how overhead and indirect costs impact product profitability.

Activity-Based Costing contrasts with simpler methods that might allocate overhead based on a single metric, such as direct labor hours or machine hours. Instead, ABC acknowledges that different products may consume overhead costs in significantly different ways, providing a more granular, detailed view of cost drivers. This level of detail can lead to more informed pricing decisions, cost control, and profit planning.

Other methods mentioned might not allocate overhead with the same level of precision. For instance, Standard costing relies on predetermined costs for planning and control rather than actual activity consumption. Job order costing typically applies to unique, custom products, and Process costing is more suitable for homogeneous products. While these methods each have their applications, Activity-Based Costing is the most effective in accurately reflecting the complexities of overhead costs associated with diverse product lines or services.