Question

True or false- Activity-based costing helps to refine the costs associated with direct materials.

A) True
B) False

Answer 1

False. Activity-based costing helps refine the costs associated with overhead rather than direct materials.

Step-by-step explanation:

False

Activity-based costing (ABC) is a method used in cost accounting that helps refine the costs associated with overhead rather than direct materials. While direct materials are a significant part of product costs, they are not directly refined through ABC. Instead, ABC focuses on allocating overhead costs accurately to products or services based on the activities that drive those costs.

For example, in a manufacturing company, ABC would identify activities like machine setups or material handling that incur overhead costs. These costs would then be allocated to the products based on the consumption of these activities. By doing so, ABC provides a more accurate insight into the true cost of producing each individual product or service, helping in decision-making processes and improving cost management.