The system that first traces costs to activities and then to products is called:
A) direct costing
B) absorption costing
C) functional-based costing
D) activity-based costing

Question

Quizplus · Accepted Answer

Activity-based costing first traces costs to specific activities and then allocates those costs to products based on how much of each activity contributes to the production of each product. This provides a more accurate view of the costs associated with producing different products compared to traditional absorption costing, which only allocates overhead costs based on a predetermined rate. Direct costing is a method of only allocating variable costs to products, while functional-based costing is a more general term referring to any costing system that allocates costs based on functions or departments within a company.

The System That First Traces Costs to Activities and Then