Which of the following statements best completes this sentence: 'Activity-based costing …'
A) asserts that cost behaviour can best be determined if the split between fixed and variable cost is ignored
B) has replaced standard costing as the preferred method of allocating costs to products
C) is based on allocating fixed overheads based on the elements that drive them
D) emphasises the need to obtain a better understanding of the behaviour of overhead costs

Question

Quizplus · Accepted Answer

Activity-based costing emphasizes the need to obtain a better understanding of the behavior of overhead costs by identifying and allocating indirect costs to specific activities that drive them rather than simply allocating them based on volume. Option A is incorrect as activity-based costing recognizes the importance of distinguishing between fixed and variable costs. Option B is incorrect as activity-based costing is not meant to replace standard costing, but rather to supplement it. Option C is partly correct as activity-based costing does allocate overheads based on the activities that drive them, but it is not specifically limited to fixed overheads.

Which of the Following Statements Best Completes This Sentence: 'Activity-Based