Answer the following questions using the information below:
Chess Woods Limited produces two products: wooden chess pieces and wooden inlaid chess boards. Under their traditional cost system using one cost driver (direct manufacturing labor hours), the cost of a set of wooden chess pieces is $325.00. An analysis of the activities and their costs revealed that three cost drivers would be used under a new ABC system. These cost drivers would be equipment usage, storage area for the material, and type of woods used. The new cost of a set of chess pieces was determined to be $298.00 per set.
-The reduction in cost per unit of wooden chess pieces under ABC system is due to difference in allocation of ________.
A) labor costs
B) prime costs
C) indirect costs
D) material costs

Question

Quizplus · Accepted Answer

The reduction in cost per unit of wooden chess pieces under the Activity-Based Costing (ABC) system is due to a difference in the allocation of indirect costs. The ABC system uses multiple cost drivers (equipment usage, storage area, and type of woods used) that more accurately allocate indirect costs to products than the traditional system, which uses a single cost driver (direct manufacturing labor hours).

Answer the Following Questions Using the Information Below