When activity-based costing is used, the flow of costs through the accounts is similar to a system using one plantwide overhead application rate other than the overhead costs are applied using multiple predetermined overhead rates.

Question

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Activity-based costing (ABC) differs from traditional costing systems by applying overhead costs using multiple predetermined rates for different activities, rather than using a single plantwide overhead rate, but the overall flow of costs through the accounts (from direct materials, direct labor, and overhead to work in process, finished goods, and cost of goods sold) remains similar.

When Activity-Based Costing Is Used, the Flow of Costs Through