An activity-based costing system allocates factory overhead rates to products or services using:
A) a single plantwide overhead rate.
B) the cost of activities based on an activity rate times the number of activity-based usage quantities.
C) an allocation of budgeted revenues produced by a product or service.
D) an end-of-year allocation of costs to products or services.

Question

Quizplus · Accepted Answer

An activity-based costing system allocates factory overhead rates to products or services based on the cost of activities. This involves identifying and classifying activities and then assigning costs associated with those activities to the products or services that caused that cost to be incurred. This method provides a more accurate way of allocating overhead costs than using a single plantwide overhead rate. Allocating based on budgeted revenues or end-of-year allocation does not accurately reflect the true cost drivers of products or services.

An Activity-Based Costing System Allocates Factory Overhead Rates to Products