Consider the following statements about activity-based costing and its use in pricing:
I. A company that uses target costing generally would have little need for activity-based costing.
II. Companies that use cost-plus pricing methods would have little need for activity-based costing.
III. The use of activity-based costing will often lead to better pricing decisions by managers.
Which of the above statements is (are) true?
A) I only.
B) II only.
C) III only.
D) I and III.
E) I, II, and III.

Question

Quizplus · Accepted Answer

III only. Activity-based costing (ABC) provides detailed insights into the true costs of products or services by identifying the activities that consume resources and assigning costs to those activities based on their consumption. This detailed cost information can lead to better pricing decisions by enabling managers to price products or services more accurately according to their actual costs, rather than using less precise costing methods. Statements I and II are incorrect because both target costing and cost-plus pricing can benefit from the detailed cost information provided by ABC. Target costing uses cost information to meet a predetermined price point, and cost-plus pricing requires accurate cost information to add a markup, making ABC valuable in both approaches.

Consider the Following Statements About Activity-Based Costing and Its Use