When Managers Use ABC Cost Allocation Rates for Decision Making

question 124

Multiple Choice

When managers use ABC cost allocation rates for decision making without distinguishing between flexible and committed costs, their estimates of incremental costs are biased upward or downward. If activity levels are steadily increasing over time, this bias would provide:

• A) Information that overstates costs
• B) Information that understates costs
• C) Accurate information
• D) Reliable information

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Definitions:

Government Restrictions

Regulations and policies imposed by governmental bodies aimed at controlling or limiting certain activities or practices within a country.

Mass Production

The large-scale manufacturing of goods using assembly line techniques and machinery, aimed at producing large quantities of standardized products efficiently.

New-Category Entries

Products that are new to a company but not new to the marketplace.

Inventions

The act of creating or designing something new that has never existed before, often protected legally by patents.