Asked by Tarja Singh on Jun 07, 2024
Verified
What are three advantages of activity-based costing over traditional volume-based allocation methods?
A) Ease of use,more accurate product costing,and more effective cost control.
B) Fewer allocation bases,ease of use,and a direct correlation to production volume.
C) More accurate product costing,more effective cost control,and better focus on the relevant factors for decision making.
D) More accurate product costing,fewer cost objects,and a direct correlation to production volume.
E) More accurate product costing,ease of use,less costly to implement.
Activity-Based Costing
Activity-based costing is a method of assigning indirect costs to products and services based on the activities they require, aiming for more accurate cost management.
Volume-Based Allocation
A method of distributing resources, costs, or revenues proportionally based on the volume of goods produced or services rendered.
Product Costing
The process of determining the total cost involved in producing a product, including raw material, labor, and overhead costs.
- Explain the advantages of activity-based costing over traditional costing methods.
Verified Answer
JB
Joseph BrierJun 11, 2024
Final Answer :
C
Explanation :
Activity-based costing provides more accurate product costing, more effective cost control, and focuses on relevant factors for decision making, such as identifying which activities drive costs. This method allows a business to allocate overhead costs to specific activities and products based on their true usage of resources, rather than allocating costs based solely on volume. This results in a more accurate measure of a product's profitability and helps in making better cost management decisions.
Learning Objectives
- Explain the advantages of activity-based costing over traditional costing methods.