Which of the Following Statements Is True of Costing Systems

question 166

Multiple Choice

Which of the following statements is true of costing systems?

• A)Many traditional costing systems can distort product costs and profitability.
• B)Traditional costing systems tend to be more costly than activity-based costing systems.
• C)Activity-based costing systems tend to combine various costs into a single cost pool.
• D)Activity-based costing systems tend to use fewer cost pools than does a traditional costing system.

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Definitions:

Operating Leverage

The degree to which a company uses fixed operating costs, affecting its earnings before interest and taxes (EBIT) with changes in sales.

Breakeven Point

The financial position at which total costs equal total revenues, indicating that there is no net loss or gain.

Fixed Cost

Costs that do not vary with the level of output or sales, such as rent, insurance, and salaries.

Revenue Line

Represents the income that a company generates from its normal business operations, typically shown at the top of an income statement.