A Major Advantage in Changing from a Traditionally-Based Costing System

question 44

Multiple Choice

A major advantage in changing from a traditionally-based costing system to an activity-based costing system is:

• A)A company's customers can benefit from any reduction in costs.
• B)Management will be able to identify the true cost of non-added-value activities.
• C)Direct labour and material costs will be reduced.
• D)Supplier costs will be reduced after the changeover.

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Definitions:

Internalizing

The process of absorbing or taking in information, values, or costs, often used when discussing the incorporation of external costs into market prices.

Externality

An economic effect of a transaction that affects third parties who did not choose to be involved in the transaction.

Externality

An externality is a cost or benefit caused by a producer that is not financially incurred or received by that producer.

Market Exchange

The process through which goods, services, or assets are traded between buyers and sellers at a determined price.