Activity-Based Costing Systems

question 44

Multiple Choice

Activity-based costing systems:

• A) use a single, volume-based cost driver.
• B) assign overhead to products based on the products' relative usage of direct labor.
• C) often reveal products that were under- or over-costed by traditional costing systems.
• D) typically use fewer cost drivers than more traditional costing systems.
• E) have a tendency to distort product costs.

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Definitions:

Annual Net Income

The total profit of a company after all expenses and taxes have been deducted from revenues over a year.

Payback Period

The amount of time it takes for an investment to generate enough cash flow to recover its initial cost.

Accounting Rate of Return

A method used to determine the profitability of an investment, calculated by dividing the average annual accounting profit by the initial investment cost.

Straight-Line Depreciation

A methodology for dispensing the cost of a durable asset over its useful period in uniform annual allocations.