Answer the following questions 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 set-up time than CP8.
-According to an ABC system,CP8 is ________ under the traditional system.
A)under-costed
B)accurately costed
C)over-costed
D)fairly costed

Question

Quizplus · Accepted Answer

Under an Activity-Based Costing (ABC) system, costs are allocated based on actual activities and resource usage. Since CP8 requires more setup time than S5, but both are assigned the same indirect costs under a traditional system, CP8 would be under-costed in the traditional system because it does not account for the additional resources (time) it consumes.

Answer the Following Questions Using the Information Below