Using direct labor costs to allocate overhead costs in an activity-based costing (ABC) system will encourage management to reduce labor costs.

Name: Using direct labor costs to allocate overhead costs in an activity-based costing (ABC) system will encourage management to reduce labor costs.
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Question

Quizplus · Accepted Answer

In an ABC system, overhead costs are allocated based on the activities that consume them, not on direct labor costs. Therefore, reducing labor costs will not reduce overhead costs.

Using Direct Labor Costs to Allocate Overhead Costs in an Activity-Based