An Activity Based Costing (ABC) system plays an important role in setting a target cost because
A)ABC encourages product designers to charge higher sales prices.
B)ABC encourages product designers to use a traditional product costing system.
C)ABC allows product designers to attempt cost improvement in particular activities.
D)ABC allows product designers to replace the manufacturing system.
E)ABC allows product designers to focus on how to increase the costs of manufacturing.

Question

Quizplus · Accepted Answer

An Activity Based Costing (ABC) system helps in setting a target cost by allowing product designers to attempt cost improvement in particular activities. This means they can identify and focus on cost-driving activities and find ways to reduce costs in those areas. This helps in achieving the target cost for a product while maintaining its quality and features. Choosing higher sales prices or focusing on increasing manufacturing costs are not the objectives of setting a target cost. Using a traditional product costing system may not provide accurate information about cost drivers and their impact on the final cost of a product. Replacing the manufacturing system is not related to setting a target cost.

An Activity Based Costing (ABC) System Plays an Important Role