When Moving from a Traditional Costing System to an Activity-Based

question 25

Multiple Choice

When moving from a traditional costing system to an activity-based system, there is a significant improvement in the accuracy of the product costs because:

• A) simple activity costing assumes that all manufacturing overhead costs are driven by the volume of production.
• B) simple activity-based costing allocates overheads based on the cost per activity driver.
• C) improved identification of cost drivers results in more accurate allocation of manufacturing overheads to products.
• D) simple activity-based costing allocates overheads based on the cost per activity driver, resulting in more accurate allocation of manufacturing overheads to products.

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Definitions:

Zero-Profit Equilibrium

A situation where a firm's total revenues exactly equal its total costs, resulting in no economic profit.

Entry

The act of entering or moving into a market or area of business to start operations or activities.

Constant-Cost Industry

An industry where the input costs remain constant irrespective of changes in the overall output level.

Entry

The act of beginning or entering into a particular market or area of business, often involving competition.