When managers use ABC cost allocation rates for decision making without distinguishing between flexible and committed costs, their estimates of incremental costs are biased upward or downward. If activity levels are steadily increasing over time, this bias would provide:
A) Information that overstates costs
B) Information that understates costs
C) Accurate information
D) Reliable information

Question

Quizplus · Accepted Answer

The bias in cost estimates due to not distinguishing between flexible and committed costs would overstate the costs. As activity levels increase over time, this bias would continue to overstate the costs, providing information that is not accurate.

When Managers Use ABC Cost Allocation Rates for Decision Making