Question

Which of the following statements is true with regard to activity-based costing?

A. It Allocates Overhead Based on Direct Labor Hours
B.It Uses a Single Cost Pool for All Activities
C.It Enhances Accuracy in Product

Answer 1

Activity-based costing enhances accuracy in product costs by allocating overhead based on relevant activity drivers.

Step-by-step explanation:

The correct statement regarding activity-based costing is C. It Enhances Accuracy in Product. Activity-based costing (ABC) is a costing method that allocates overhead costs to products based on the activities they require. Instead of using direct labor hours, ABC allocates overhead costs based on relevant activity drivers, such as machine hours or number of setups. By using multiple cost pools for different activities, ABC provides a more accurate representation of the actual costs associated with producing a product or service.