Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 15

"One of the lessons learned from activity-based costing is that all costs are really a function of volume of output." Is this true, false, or uncertain? Explain.

Step 1 of 2

Activity based costing system:

Activity based costing system is technique to identify the overhead cost in a better way than in a traditional costing system. In a traditional costing system overheads are identified using overhead absorption rate based on direct material direct labor, machine hours etc. Which not allocate the overheads in relative manner to products?

Activity based costing system allocate the overhead cost based on activities used in producing the products which ultimately allocates the overheads more accurately than traditional costing system.

So activity based costing system is related to a method of allocation of overheads.