Activity-based costing systems:
A)use a single, volume-based cost driver.
B)assign overhead to products based on the products' relative usage of direct labour.
C)often reveal products that were undercosted or overcosted by traditional product costing systems.
D)typically use fewer cost drivers than more traditional costing systems.
E)have a tendency to distort product costs.

Question

Quizplus · Accepted Answer

Activity-based costing systems often reveal products that were undercosted or overcosted by traditional product costing systems. This is because activity-based costing systems allocate overhead costs more accurately by using multiple cost drivers that reflect the specific activities that consume resources. This leads to a more precise understanding of the costs of producing specific products or providing specific services.

Activity-Based Costing Systems