Answer the following question(s)using the information below.Products S5 and CP8 each are assigned $50.00 in indirect costs by a traditional costing system.An activity analysis revealed that although production requirements are identical, S5 requires 45 minutes less setup time than CP8.
-Compared to an activity-based cost system, CP8 is ________ under the traditional system.
A)undercosted
B)overcosted
C)fairly costed
D)accurately costed
E)costed the same

Question

Quizplus · Accepted Answer

In an activity-based costing system, costs are allocated based on actual activities and resources consumed. Since CP8 requires more setup time than S5, it would incur higher costs in an activity-based system. Therefore, under the traditional system, which assigns the same indirect costs to both products, CP8 is undercosted.

Answer the Following Question(s)using the Information Below