Question

Activity-based costing systems:

a. Have a tendency to distort product costs.
b. Often reveal products that were under- or over-costed by traditional costing systems.
c. Assign overhead to products based on the products' relative usage of direct labor.
d. Typically use fewer cost drivers than more traditional costing systems.
e. Use a single, volume-based cost driver.

Answer 1

Answer:

The correct answer is letter "B": Often reveal products that were under- or over-costed by traditional costing systems.

Explanation:

Activity-Based Costing or ABC is a managerial accounting method that assigns certain indirect costs to the products incurring the bulk of those costs. ABC is primarily used in the manufacturing sector to make a better calculation of the true cost of production per unit. Compared to the traditional costing method, ABC spots products that could be under-costed or over-costed.