A company's management accountant is trying to improve the way costs are allocated within the company. Currently, several corporate expenses are grouped together and labeled "overhead." If the accountant wanted to use activity-based costing (ABC) to help solve the problem, what should she do?
A) She should try to trace the departments' costs to their cost objects, and then charge each department based on those cost relationships.
B) She should research how the company's competitors are allocating their costs, and then implement one of those strategies.
C) She should look for bottlenecks within the production process, and try to eliminate them, thus reducing costs.
D) She should examine the firm's value chain and apply target costing before adopting ABC.

Question

Quizplus · Accepted Answer

Activity-based costing involves tracing the costs of each activity within a company to specific cost objects or products. By doing so, the accountant can allocate overhead costs more accurately and fairly based on the actual activities that require those expenses. Therefore, the best choice is for the accountant to try to trace the departments' costs to their cost objects and charge each department based on those cost relationships. This will provide a more accurate analysis of the company's cost structure and identify opportunities for cost reduction.

A Company's Management Accountant Is Trying to Improve the Way