Question

Activity-based costing:

(a)is the initial phase of converting to a just-in-time operating environment.
(b)can be used only in a job order costing system.
(c)is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers.
(d)uses direct labor as its primary cost driver.

Answer 1

Activity-based costing is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers. It can be used in different costing systems and provides a more accurate allocation of costs.

Step-by-step explanation:

Activity-based costing is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers. It is a method used to allocate indirect costs to products or services based on the activities that drive those costs.

For example, let's say we have a manufacturing company that produces two different products. The first product requires more machine setup time, while the second product requires more material handling. By using activity-based costing, the company can assign the indirect costs of machine setup to the first product and the indirect costs of material handling to the second product.

Activity-based costing can be used in various costing systems, including job order costing and process costing. It allows for a more accurate allocation of costs and can help managers make better decisions regarding pricing, product mix, and process improvement.