Final answer:
Activity-Based Costing (ABC) allocates costs based on the activities required to produce goods or services, providing a more accurate method for costing products than traditional systems. It is not limited to process cost systems, does not focus solely on units of production, and does not use only a single basis of allocation. ABC is supported by cost analysis, which categorizes costs into fixed and variable, with each type providing distinct insights for a firm. The correct option is C.
Step-by-step explanation:
Activity-Based Costing (ABC) focuses on the activities needed to produce a good or perform a service. Unlike traditional costing methods that may use a single basis of allocation or focus on the volume of production, ABC allocates costs based on the resources consumed by activities in creating a product or providing a service.
By doing so, ABC allows for more accurate product costing, especially in complex environments with multiple products and indirect costs. Decomposing total costs into fixed and variable components is crucial; fixed costs, such as the rent on a factory, do not vary with the level of production, while variable costs do.
Understanding the impact of each type of cost and managing them effectively can provide valuable insights for the firm. Breaking down costs and analyzing them through alternative measures like marginal cost, average total cost, and average variable cost can guide decision-making processes and economic decisions about future production and pricing.