Which statement is true in an activity-based costing environment?
A)Managers do not need to know product costs.
B)Companies use departmental overhead rates.
C)Companies compute the rate for each cost driver in each activity center.
D)Companies compute the rate for up to three cost drivers in each activity center.

Question

Quizplus · Accepted Answer

In an activity-based costing environment, companies compute the rate for each cost driver in each activity center. This allows for more accurate allocation of overhead costs to products or services. Option A is incorrect because managers do need to know product costs in order to make informed decisions about pricing and profitability. Option B is incorrect because departmental overhead rates are not used in activity-based costing. Option D is incorrect because there is no set limit on the number of cost drivers that can be used in each activity center.

Which Statement Is True in an Activity-Based Costing Environment