Question

The allocation of indirect costs in an activity-based costing system

A. may require other costs to be allocated to activities before the costs of the activities can be allocated to the products.

B. is simplified because more costs are identified as direct costs.

C. requires the use of heterogeneous cost pools.

D. is simplified because a limited number of activities are identified as cost objects

Answer 1

The allocation of indirect costs in an activity-based costing system involves allocating other costs to activities before allocating the costs of the activities to the products. Option A

Step-by-step explanation:

In an activity-based costing (ABC) system, the allocation of indirect costs may require other costs to be allocated to activities before the costs of the activities can be allocated to the products. This is because indirect costs are not directly traceable to products and need to be assigned to activities that contribute to those costs.

For example, let's say we have a manufacturing company that incurs costs for setup, maintenance, and quality control activities. To allocate the indirect costs to products, we first allocate the costs of these activities to the products based on the allocation bases (e.g., setup hours, machine hours, etc.). Then, we allocate the indirect costs based on the activity costs assigned to each product.

Therefore, option A is the correct answer as it accurately describes the process of allocating indirect costs in an ABC system. Option A