Customer-level activities relate to specific customers and are not tied to any specific products

Question

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Activity-based costing (ABC) differs from traditional costing systems in that it allocates indirect costs (overhead) to specific activities related to the production of a product or service, as opposed to assigning those costs to an entire product or service. This provides a more accurate way of determining the true cost of a product or service, as it takes into account the specific activities and resources required to produce it. Traditional costing systems, on the other hand, allocate overhead based on a predetermined rate that is applied uniformly across all products or services, regardless of their unique characteristics or production requirements. This can result in inaccurate cost estimates and distorted pricing decisions.

Customer-Level Activities Relate to Specific Customers and Are Not Tied