Consider the following statements about relevant costing and activity-based costing:
I. The concept of relevant costs and benefits cannot be used in conjunction with an activity-based costing system.
II. The concept of relevant costs and benefits must be modified for use with an activity-based costing system.
III. Generally speaking, the decision maker can better associate relevant costs with the activities that drive them under an activity-based costing system than under a conventional product-costing system.
Which of the above statements is (are) true?
A) I only.
B) II only.
C) III only.
D) I and II.
E) II and III.

Question

Quizplus · Accepted Answer

III only is true because activity-based costing (ABC) provides a more accurate method of product/service costing, leading to more precise identification of cost drivers and the relevant costs associated with specific activities. This enhances decision-making by allowing managers to better understand the costs directly relevant to specific decisions. Statements I and II are incorrect because the concept of relevant costs can indeed be used with an ABC system, and it does not need to be modified for such use; ABC inherently supports the identification and management of relevant costs by linking them to specific activities.

Consider the Following Statements About Relevant Costing and Activity-Based Costing