Why is activity-based costing used to allocate service department costs?
A)There are fewer cost-allocation bases.
B)It can lead to improved allocation of production department costs to service departments.
C)It results in identifying more accurate cost-allocation bases.
D)None of the answers is correct.

Question

Quizplus · Accepted Answer

Activity-based costing identifies more accurate cost-allocation bases, allowing for better allocation of service department costs. This method recognizes that service department costs are incurred to support specific activities, rather than to support a specific production department. As a result, it provides a more detailed understanding of the specific activities that a service department provides, allowing for a more accurate allocation of service department costs.

Why Is Activity-Based Costing Used to Allocate Service Department Costs