Which of the following is true with activity based cost accounting?
A) Activity-based costing ignores the allocation of marketing and distribution costs.
B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.
C) The focus is on activities that account for a sizable fraction of indirect costs .
D) Chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems.

Question

Quizplus · Accepted Answer

Activity-based costing focuses on activities that account for a sizable fraction of indirect costs, and allocates costs based on the activities involved in producing a product or providing a service. Option A is incorrect as marketing and distribution costs may also be assigned to activities. Option B is incorrect as activity-based costing is more likely to result in major differences from traditional costing systems if a firm manufactures multiple products, as each product may have different activities and cost drivers. Option D is incorrect as activity-based costing reduces the chances of product-cost cross-subsidization, as each product's cost is based on the activities and cost drivers specific to that product.

Which of the Following Is True with Activity Based Cost