Which of the following statements accurately describes the basis of activity-based costing?
A) Activities simply sustain a facility's general manufacturing process.
B) Activities refer to batch-level costs incurred to support the production of each different type of product.
C) Activities consume facility-level costs.
D) Activities consume resources and products consume activities.

Question

Quizplus · Accepted Answer

Activity-based costing relies on the principle that activities consume resources, and products consume activities. Therefore, it aims to allocate overhead costs more accurately by identifying the activities that generate those costs and determining the products that use those activities. Option A is incorrect because activities in activity-based costing are not just to sustain a facility's manufacturing process but also to support other processes such as marketing and customer service. Option B is incorrect because batch-level costs are a type of activity that is only one of the four categories (unit-level, batch-level, product-level, and facility-level) in activity-based costing. Option C is incorrect because facility-level costs are not consumed by activities but rather are fixed costs that support the entire operation of the facility.

Which of the Following Statements Accurately Describes the Basis of Activity-Based