Activity-based costing treats overhead costs as more direct than traditional cost-accounting methods have treated them.

Question

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Activity-based costing (ABC) identifies the activities that drive overhead costs in a more precise manner than traditional cost-accounting methods. ABC considers that indirect costs are not necessarily fixed or constant, but instead vary according to the level of activity in each department or product line. By analyzing the activities and resources needed to support these activities, ABC attributes indirect costs more accurately to the products or services that consume them.

Activity-Based Costing Treats Overhead Costs as More Direct Than Traditional