A Basic Assumption of Activity-Based Costing (ABC) Is That

question 33

Multiple Choice

A basic assumption of activity-based costing (ABC) is that:

• A) All manufacturing costs vary directly with units of production.
• B) Products or services require the performance of activities and activities consume resources.
• C) Only costs that respond to unit-level drivers are product costs.
• D) Only variable costs are included in the activity cost pools.

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Definitions:

Relevant Range

The span of activity or volume in which the assumptions about fixed and variable cost behavior remain valid.

Variable Cost

A cost that changes in direct proportion to changes in the level of production or sales volume.

Total Fixed Cost

The sum of all constant expenses that a company incurs, regardless of the manufacturing or sales volume.

Relevant Range

The range of activity or volume over which the assumptions about fixed and variable cost behavior hold true.