Consider the Following Statements About Relevant Costing and Activity-Based Costing

question 81

Multiple Choice

Consider the following statements about relevant costing and activity-based costing:
I. The concept of relevant costs and benefits cannot be used in conjunction with an activity-based costing system.
II. The concept of relevant costs and benefits must be modified for use with an activity-based costing system.
III. Generally speaking, the decision maker can better associate relevant costs with the activities that drive them under an activity-based costing system than under a conventional product-costing system.
Which of the above statements is (are) true?

• A) I only.
• B) II only.
• C) III only.
• D) I and II.
• E) II and III.

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Definitions:

Factory Rent

Expenses incurred for leasing a premises to use as a manufacturing or production facility.

Prime Costs

The combined direct costs of raw materials and labor that are directly attributable to the production of a product.

Conversion Costs

The sum of direct labor and overhead costs involved in converting raw materials into finished goods.

Electricity Costs

The expenses incurred for the consumption of electricity, often classified as a variable cost in production or operations.