An Activity-Based Cost Allocation System

question 32

Multiple Choice

An activity-based cost allocation system:

• A)Is one form of a direct or variable costing system.
• B)Does not provide total unit cost data.
• C)Traces costs to products on the basis of activities performed on them.
• D)Does not provide for the allocation of any cost to products that cannot be directly traced to those products.
• E)Does not involve the level of detail and the number of allocations that companies make with traditional allocation methods.

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Definitions:

Leasing (NAL)

An agreement where an asset is rented for a specific period of time, but not applicable here as NAL is an unrecognized abbreviation in this context.

Depreciation Tax Shield

An approach to reduce taxable income through the allowance for depreciation, thus saving on taxes.

Lessee's Cost

Lessee's cost involves the expenses borne by a lessee, including lease payments, maintenance, and other costs related to the leased asset.

Tax-oriented Lease

A lease structured in a way that allows the lessor to claim tax benefits, such as depreciation deductions and tax credits, which are then typically passed on to the lessee in the form of lower lease payments.