The following equation is used for determining cost-volume-profit relationships by firms
Total Cost = (Unit-Level Cost ´ Number of Units)
+ (Batch-Level Cost ´ Batch Cost Driver Activity)
+ (Product-Level Cost ´ Product Cost Driver Activity)
+ (Customer-Level Cost ´ Customer Cost Driver Activity)
+ (Facility-Level Cost ´ Facility-Cost Driver Activity)
A)using activity-based costing systems.
B)using traditional costing systems.
C)following generally accepted accounting principles.
D)using game theory.

Question

Quizplus · Accepted Answer

The equation is based on activity-based costing, as it includes different cost drivers for different activities and levels, which is a characteristic of ABC systems. Traditional costing systems do not use such detailed cost drivers and typically allocate overhead based on a single predetermined rate. Generally accepted accounting principles (GAAP) do not prescribe a specific costing system or equation. Game theory is not relevant to this equation.

The Following Equation Is Used for Determining Cost-Volume-Profit Relationships by Firms