In a simple activity-based product costing system:
A) direct material, direct labour, manufacturing overhead and non-manufacturing overhead are assigned to products on an activity basis.
B) direct material is traced using a traditional approach, while direct labour, manufacturing overhead and non-manufacturing overhead are assigned to products on an activity basis.
C) direct material and direct labour are traced using a traditional approach, manufacturing overhead is assigned on an activity basis and non-manufacturing overhead is expensed as it is incurred.
D) direct material, direct labour and manufacturing overhead are traced using a traditional approach, and non-manufacturing overhead is assigned on an activity basis.

Question

Quizplus · Accepted Answer

In a simple activity-based product costing system, direct material and direct labour are traced using a traditional approach. However, to assign manufacturing overhead costs, an activity-based approach is used. This means that manufacturing overhead costs are assigned to products on the basis of the specific activities that are used to produce them. Non-manufacturing overhead costs are not assigned to products since they are not part of the production process, but rather are expensed as they are incurred. Therefore, the best choice is C.

In a Simple Activity-Based Product Costing System