Which of the following statements is true of activity-based costing?
A) In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs.
B) Activity based costing is more suited to companies with high product diversity than companies with single product line.
C) Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services.
D) The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the products.

Question

Quizplus · Accepted Answer

Activity-based costing is more suited to companies with high product diversity than companies with a single product line because it allows for the tracing of costs to specific activities and then to specific products or services. This makes it better suited for companies with a wide range of products. A is incorrect because direct labor-hours may not be appropriate for allocating all non-manufacturing indirect costs. C is incorrect because activity-based costing provides a more accurate allocation of costs to specific cost objects rather than broadly averaging or spreading them uniformly. D is incorrect because activity-based costing does not only distribute direct costs but also indirect costs, which may not be accurately allocated with peanut-butter costing.

Which of the Following Statements Is True of Activity-Based Costing