When do activity-based costing systems provide better product costs?
A)When they employ more activity-cost drivers
B)When they identify and cost more indirect cost differences among products
C)When they employ fewer activity-cost drivers
D)They always yield more accurate product costs than traditional systems

Question

Quizplus · Accepted Answer

Activity-based costing systems provide better product costs when they identify and cost more indirect cost differences among products. By allocating indirect costs based on the activities that drive them, this system can more accurately capture the true cost of a product, especially for those that use different amounts of indirect resources. However, adding too many activity-cost drivers can lead to excessive complexity and cost, so finding the balance is key. Furthermore, it should be noted that activity-based costing systems may not always yield more accurate product costs than traditional systems, as the accuracy depends on the quality of the cost drivers used and the appropriateness of the cost allocation method.

When Do Activity-Based Costing Systems Provide Better Product Costs