An advantage of activity-based costing compared with traditional costing is:

Question

Quizplus · Accepted Answer

Activity-based costing links overhead costs to the specific activities or cost drivers that create those costs. This results in a more accurate and fairer costing because it recognizes the actual cause-and-effect relationships between costs and activities. Traditional costing simply allocates overhead costs based on the volume of production output or direct labor hours, which can be arbitrary and misrepresentative. Therefore, A is the best choice because it correctly identifies the advantage of activity-based costing over traditional costing. Option B is also correct, but not as comprehensive as A, while option C is incorrect because activity-based costing may actually be more expensive to implement than traditional costing due to the complexity of identifying and tracking cost drivers.

An Advantage of Activity-Based Costing Compared with Traditional Costing Is