Answer the following questions using the information below:
Products S5 and CP8 each are assigned $50.00 in indirect costs by a traditional costing system.An activity analysis revealed that although production requirements are identical,S5 requires 45 minutes less set-up time than CP8.
-Although ABC calls for more cost pools,more cost drivers and more calculations,the procedures are similar to those used in traditional systems.

Question

Quizplus · Accepted Answer

Activity-based costing (ABC) considers the variations in setup times, and as per the given information, S5 requires 45 minutes less set-up time, which means it incurs fewer setup-related costs than CP8. Therefore, ABC would allocate lower indirect costs to S5 than to CP8, unlike traditional costing systems that allocate indirect costs based on arbitrary cost drivers. However, despite having more cost pools, more cost drivers, and more calculations, the procedure for ABC is similar to traditional costing systems in terms of allocating costs.

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