How does activity-based costing view overhead costs?

Question

Quizplus · Accepted Answer

Activity-based costing views overhead costs as caused by activities which 'drive' the costs. This approach considers that overhead costs are not random or arbitrary but rather result from specific activities performed within the organization. Therefore, by identifying the activities that contribute to overhead costs and tracing them to cost objects, activity-based costing provides a more accurate measure of the true cost of each product or service.

How Does Activity-Based Costing View Overhead Costs