Flavorful Manufacturing Sells a Number of Goods Whose Selling Price

question 23

Multiple Choice

Flavorful Manufacturing sells a number of goods whose selling price is heavily influenced by cost. A recent study of product no. 519 revealed a traditionally-derived total cost of $1,019, a selling price of $1,850 based on that figure, and a newly computed activity-based total cost of $1,215. Which of the following statements is true?

• A) All other things being equal, the company should consider a drop in its sales price.
• B) The company may have been extremely competitive in the marketplace from a price perspective.
• C) Product no. 519 could be labeled as being overcosted by the firm's traditional costing procedures.
• D) If product no. 519 is undercosted by traditional accounting procedures, then all of the company's other products must be undercosted as well.
• E) Generally speaking, the activity-based cost figure is "less accurate" than the traditionally-derived cost figure.

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Definitions:

Activity-Based Costing

Activity-based costing is an accounting method that identifies and assigns costs to specific activities, facilitating more precise economic analysis of various business processes.

Activity Rates

Rates used in activity-based costing to assign costs to products or services based on the amount of an activity they consume.

Activity-Based Costing

A method of costing that identifies individual activities as the fundamental cost objects and uses the costs of these activities to compute the costs of various products or services.

Direct Labor-Hours

The total hours worked by employees directly involved in the production process, often used as a basis for allocating overhead costs.