In activity-based costing, some manufacturing costs may be excluded from product costs.

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Quizplus · Accepted Answer

Activity-based costing is a more accurate costing system compared to traditional costing as it assigns indirect costs to individual products based on the specific activities that contribute to their production rather than using broad cost allocation rates. This leads to a more precise understanding of the true costs of production, which may exclude some manufacturing costs from product costs. Traditional costing, on the other hand, uses broad cost allocation rates, which may lead to over or underestimating product costs.

In Activity-Based Costing, Some Manufacturing Costs May Be Excluded from Product