Which of the following statements is true of costing systems?
A)Many traditional costing systems can distort product costs and profitability.
B)Traditional costing systems tend to be more costly than activity-based costing systems.
C)Activity-based costing systems tend to combine various costs into a single cost pool.
D)Activity-based costing systems tend to use fewer cost pools than does a traditional costing system.

Question

Quizplus · Accepted Answer

Traditional costing systems often allocate costs based on arbitrary measures such as direct labor hours, which can distort product costs and profitability. Activity-based costing systems, on the other hand, allocate costs based on activities and their drivers, providing a more accurate picture of cost behavior.

B) is incorrect because activity-based costing systems tend to be more complex and therefore more costly than traditional costing systems.

C) is incorrect because activity-based costing systems separate costs into multiple cost pools based on activities, rather than combining them into a single cost pool.

D) is incorrect because activity-based costing systems typically use more, not fewer, cost pools than traditional costing systems in order to capture a greater level of detail about cost behavior.

Which of the Following Statements Is True of Costing Systems