The use of which of the following costing systems is most likely to reduce cost distortion to a minimum?
A) Plantwide overhead rate
B) Departmental overhead allocation rates
C) Activity-based costing
D) Traditional costing system

Question

Quizplus · Accepted Answer

Activity-based costing (ABC) is designed to allocate overhead costs more accurately by identifying specific activities that drive costs and assigning those costs to products based on the actual consumption of those activities by the product. This approach can reduce cost distortion by providing a more accurate reflection of the costs of producing individual products or performing specific services. Plantwide overhead rate and departmental overhead allocation rates are less accurate, while traditional costing systems tend to allocate overhead costs based on broad assumptions and may not reflect actual costs accurately.

The Use of Which of the Following Costing Systems Is