Traditional cost systems distort product costs because
A) they do not know how to identify the appropriate units.
B) competitive pricing is ignored.
C) they emphasize financial accounting requirements.
D) they apply average support costs to each unit of product.
E) they assign direct costs using direct cost tracing.

Question

Quizplus · Accepted Answer

Traditional cost systems apply average support costs to each unit of product, which leads to distortions in product costs. This is because support costs are not directly related to the number of units produced or sold, and using an average allocation can unfairly penalize some products while giving others an advantage. Alternatively, activity-based costing (ABC) allocates support costs based on the activities that drive them, resulting in more accurate product costs.

Traditional Cost Systems Distort Product Costs Because