A system of assigning costs to departments and products on the basis of a variety of activities instead of only one allocation base is called:
A) Plantwide overhead costing.
B) A cost center accounting system.
C) Controllable costing.
D) Performance costing.
E) Activity-based costing.

Question

Quizplus · Accepted Answer

Activity-based costing (ABC) is a system of assigning costs to departments and products on the basis of a variety of activities instead of only one allocation base. This allows for a more accurate allocation of costs, particularly indirect costs, to products, which leads to better decision-making in pricing and product mix. Plantwide overhead costing (A) is a traditional costing method that uses a single cost pool to allocate indirect costs. A cost center accounting system (B) assigns costs to specific departments based on their use of resources, but does not necessarily take into account the variety of activities that contribute to those costs. Controllable costing (C) and performance costing (D) are not standard terms in management accounting and do not relate specifically to the concept of activity-based costing.

A System of Assigning Costs to Departments and Products on the Basis