Question

Which statement is generally true of activity-based costing?

ABC uses mainly unit-level cost drivers.

ABC pools costs by department.

ABC allocates less service costs to product than traditional methods.

All of the above are true.

None of the above are true.

Answer 1

         ABC uses mainly unit-level cost drivers =True

To assign overhead costs more accurately, activity‐based costing assigns activities to one of four categories. The costs of unit‐level, batch‐level, and product‐line activities are easily allocated to a specific product, either directly as a unit‐level activity or through allocation of a pooled cost for batch‐level and product‐line activities

ABC pools costs by department= True

A cost pool is a grouping of individual costs, typically by department or service center. Cost allocations are then made from the cost pool. For example, the cost of the maintenance department is accumulated in a cost pool and then allocated to those departments using its services

ABC allocates less service costs to product than traditional methods= False

A fundamental difference between traditional costing and ABC costing is that ABC methods expand the number of indirect cost pools that can be allocated to specific products. The traditional method takes one pool of a company's total overhead costs to allocate universally to all products.

Please do upvote if you found the answer useful.

Feel free to reach in the comment section in case of any clarification or queries.