Which of the following statements comparing traditional and activity-based costing (ABC)is true?
A) ABC systems eliminate cross subsidies.
B) Traditional systems eliminate cross subsidies.
C) ABC and traditional systems often produce similar product cost information.
D) All of these are true.

Question

Quizplus · Accepted Answer

Activity-based costing systems identify and allocate costs based on the activities that drive them, eliminating cross subsidies between different products or services. Traditional costing systems, on the other hand, often allocate costs based on arbitrary overhead rates and can result in cross subsidies. ABC and traditional systems can produce different product cost information, especially in complex manufacturing environments. Therefore, statement C is not true. D is also not true as traditional systems do not eliminate cross subsidies.

Which of the Following Statements Comparing Traditional and Activity-Based Costing