Which of the following costing systems is more accurate for overhead cost allocation and most likely to allow managers the ability to make better pricing decisions?
A)Departmental overhead allocation rates.
B)Plantwide overhead rate.
C)Activity-based costing.
D)Traditional costing system.
E)Direct costing.

Question

Quizplus · Accepted Answer

Activity-based costing is a more accurate costing system for overhead cost allocation as it considers all activities of a company and allocates costs accordingly. This helps in better pricing decisions as it provides accurate product costs and identifies cost drivers, allowing managers to focus on reducing costs in specific areas. Departmental overhead allocation rates and plantwide overhead rate are less accurate as they may allocate costs based on arbitrary factors. Traditional costing system and direct costing do not consider all overhead costs and are not suitable for pricing decisions.

Which of the Following Costing Systems Is More Accurate for Overhead