A product's cost is the sum of its direct-material cost, its direct-labor cost, and its overhead cost, which is the accumulation of all the resource costs driven to the product by the various cost drivers selected for the ABC system.

Question

Quizplus · Accepted Answer

Activity-Based Costing (ABC) assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of machine hours. ABC assigns costs based on the activities that drive costs, such as the provision of resources or services, and these can include direct materials, direct labor, and overhead costs.

A Product's Cost Is the Sum of Its Direct-Material Cost