Which Statement About Costing Systems Is True

question 118

Multiple Choice

Which statement about costing systems is true?

• A) Due to technology and mass production, labour related allocation bases are sometimes considered arbitrary.
• B) Traditional costing systems use a three stage cost allocation process.
• C) Labour related allocation bases should never be used in service organisations.
• D) Activity based costing does not use machine hours or other volume based allocation bases.

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Definitions:

Estimated Activity

An approximation of the level of effort, production volume, or usage that forms the basis for budgeting and costing activities.

Activity at Capacity

Refers to the maximum level of work that an organization can achieve with its current resources and constraints.

Predetermined Overhead Rate

An estimated overhead rate used to assign manufacturing overhead costs to products or job orders, based on a planned activity level.

Capacity

The maximum level of output that a company can sustain to produce goods or provide services in a given period.