Activity-Based Costing (ABC) Is a Two-Stage Cost Allocation System That

question 32

True/False

Activity-based costing (ABC) is a two-stage cost allocation system that (1) allocates costs to activities and (2) then to products based on their use of the activities.

---

Definitions:

Overhead Costs

Overhead costs are the indirect expenses associated with running a business that are not directly tied to a specific product or service, including utilities, rent, and management salaries.

Plantwide Overhead Rate

A single overhead absorption rate used throughout an entire factory or plant to allocate overhead costs to production activities.

Machine Hours

A measure of production time, calculated as the total number of hours machines are operated in the production process.

Overhead Assigned

The process of allocating indirect costs, such as utilities or rent, to specific products or departments within a company.