Activity-based costing systems:
A) use a single, volume-based cost driver.
B) assign overhead to products based on the products' relative usage of direct labor.
C) often reveal products that were under- or over-costed by traditional costing systems.
D) typically use fewer cost drivers than more traditional costing systems.
E) have a tendency to distort product costs.

Question

Quizplus · Accepted Answer

Activity-based costing (ABC) systems often reveal products that were under- or over-costed by traditional costing systems because they allocate overhead costs based on multiple activities, providing a more accurate reflection of the resources consumed by each product. Traditional systems, which might use a single cost driver like direct labor hours, can distort the actual costs of products by oversimplifying how overhead costs are related to products.

Activity-Based Costing Systems