Which of the following statements is true regarding activity-based costing (ABC)?
A) It is based on the concept that a single cost driver can drive all overhead costs.
B) It is based on the concept that activities drive overhead costs.
C) It is based on the concept that unit-level costs drive all overhead costs.
D) It is based on the concept that either the number of direct labour or machine hours incurred drives all overhead costs.

Question

Quizplus · Accepted Answer

Activity-based costing (ABC) is based on the concept that activities drive overhead costs. This means that the costs are identified and assigned to specific activities that generate them, rather than being allocated based on a single cost driver such as direct labor hours or machine hours. By doing so, ABC provides a more accurate portrayal of the actual cost of products or services and can help improve decision-making.

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