Final answer:
Activity-based costing is most appropriate for companies with complex operations and diverse cost drivers.
Step-by-step explanation:
The use of activity-based costing is most appropriate for companies that have complex operations and products with diverse cost drivers. This costing method allocates overhead costs to specific activities and then assigns those costs to products or services based on the activities they require. By analyzing the costs of each activity, businesses can more accurately determine the actual costs associated with producing their products or delivering their services.
For example, a company that manufactures customized furniture could use activity-based costing to determine the costs associated with each individual furniture piece. They would consider activities such as material sourcing, cutting, carving, assembly, painting, and packaging. This method would provide a more accurate cost allocation compared to a traditional cost accounting method.