Which of the following statements regarding Activity-Based Costing is correct?
A) Cost drivers and cost objects are essential parts of Activity-Based Costing.
B) Overhead costs are allocated based on actual costs incurred in a period.
C) Direct costs (materials and labor) are accumulated in cost pools and assigned based on driver usage.
D) Increases in information technology have made Activity-Based Costing less useful.
E) All of the above are correct.

Question

Quizplus · Accepted Answer

Activity-Based Costing (ABC) focuses on identifying activities in an organization and assigning costs to products and services based on the number of events or transactions involved in the process of providing a product or service. Cost drivers are factors that cause the cost of an activity to increase or decrease, and cost objects are items for which costs are measured and assigned. This makes option A correct, as both cost drivers and cost objects are indeed essential components of ABC. Options B, C, and D contain inaccuracies regarding the principles of ABC.

Which of the Following Statements Regarding Activity-Based Costing Is Correct