Smaller cost distortions occur when the traditional system's single indirect-cost rate and the activity-cost-driver rates:
A)are similar in proportion to each other.
B)use the same total costs for computations.
C)use the same cost driver units.
D)are more different than alike.

Question

Quizplus · Accepted Answer

When the traditional system's single indirect-cost rate and the activity-cost-driver rates are similar in proportion to each other, there are smaller cost distortions. This is because the allocation of indirect costs is more accurate and reflective of the actual usage of resources by different activities. If the rates are very different from each other, it can lead to over or under allocation of costs, which can distort product costs and affect decision making. Therefore, option A is the best choice.

Smaller Cost Distortions Occur When the Traditional System's Single Indirect-Cost