Activity-based costing (ABC)can eliminate cost distortions because ABC:
A)develops cost drivers that directly link the activities performed to the products manufactured.
B)establishes multiple cost pools.
C)employs capacity-related cost drivers.
D)recognizes interactions between different departments in assigning overhead costs.

Question

Quizplus · Accepted Answer

Activity-based costing (ABC) develops cost drivers that directly link the activities performed to the products manufactured. This eliminates cost distortions by identifying the specific activities that consume resources and assigning costs to them based on their usage. This provides a more accurate picture of the true cost of producing a product or providing a service. Establishing multiple cost pools, employing capacity-related cost drivers, and recognizing interactions between different departments in assigning overhead costs are all components of ABC, but A is the most direct way in which ABC eliminates cost distortions.

Activity-Based Costing (ABC)can Eliminate Cost Distortions Because ABC