Activity-based costing, compared to traditional costing, decreases the accuracy of cost measurement by using arbitrary cost allocation bases for overhead.

Question

Quizplus · Accepted Answer

Activity-based costing is actually designed to increase the accuracy of cost measurement by allocating overhead costs based on the specific activities that drive those costs, rather than using arbitrary allocation bases like direct labor hours or machine hours as in traditional costing.

Activity-Based Costing, Compared to Traditional Costing, Decreases the Accuracy of Cost