Which of the following costing systems is more accurate for overhead cost allocation and most likely to allow managers the ability to make better pricing decisions?
A) Departmental overhead allocation rates
B) Plantwide overhead rate
C) Activity-based costing
D) Traditional costing system

Question

Quizplus · Accepted Answer

Activity-based costing is the most accurate system for overhead cost allocation as it identifies and assigns costs to specific activities that generate overhead, which leads to more precise pricing decisions. It also allows for a better understanding of the cost behavior of various activities, helping managers to make more informed decisions. Departmental overhead allocation rates and plantwide overhead rates are less accurate and can lead to distorted cost information. Traditional costing system also assigns overhead based on a single driver, which may not accurately represent the actual cost of producing a product or service.

Which of the Following Costing Systems Is More Accurate for Overhead