Activity-based costing minimizes the risk of cost distortion when applying overhead by:
A) using a single cost driver rate.
B) using multiple cost driver rates.
C) using actual activity cost rates.
D)using absorption cost rates.

Question

Quizplus · Accepted Answer

Activity-based costing uses multiple cost driver rates to allocate overhead to products or services based on the specific activities that are consumed. This minimizes the risk of cost distortion because it recognizes the different cost behaviors of various activities and allocates overhead based on their actual usage. Using a single cost driver rate, actual activity cost rates, or absorption cost rates may result in cost distortion because they do not consider the variability in activity costs.

Activity-Based Costing Minimizes the Risk of Cost Distortion When Applying