Which of the following statements comparing traditional and activity-based costing (ABC) is true?
A) ABC systems eliminate cross subsidies.
B) Traditional systems eliminate cross subsidies.
C) ABC and traditional systems often produce similar product cost information.
D) All of the above are true.

Question

Quizplus · Accepted Answer

Traditional costing systems allocate manufacturing overhead based on direct labor hours or machine hours, which may result in cross subsidies between products. ABC systems identify multiple cost drivers, leading to more accurate and precise costing information and eliminating the cross-subsidization between products. Therefore, statement A is the only true statement.

Which of the Following Statements Comparing Traditional and Activity-Based Costing