An activity-based cost allocation system:
A) Is one form of a direct or variable costing system.
B) Does not provide total unit cost data.
C) Traces costs to products on the basis of activities performed on them.
D) Does not provide for the allocation of any cost to products that cannot be directly attributable to those products.
E) Does not involve the level of detail and the number of allocations that companies make with traditional allocation methods.

Question

Quizplus · Accepted Answer

An activity-based cost allocation system traces costs to products on the basis of activities performed on them, which allows for a more accurate allocation of indirect costs to products than traditional allocation methods. The other answer choices are incorrect: A is incorrect because activity-based costing is a separate costing method from direct or variable costing; B is incorrect because an activity-based cost allocation system does provide total unit cost data; D is incorrect because an activity-based cost allocation system is designed to allocate all costs, even indirect costs, to products based on the activities performed on those products; and E is incorrect because activity-based costing often involves more detail and more allocations than traditional allocation methods in order to better reflect the costs of producing products.

An Activity-Based Cost Allocation System