Question

Which of the following statements is true of activity−based ​costing?
Options:
O The main advantage of activity−based costing over peanut−butter costing is the accurate distribution of all direct costs to the products.
O Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services.
O In activity−based ​costing, direct labor−hours is always the best allocation base to allocate all non−manufacturing indirect costs.
O Activity based costing is more suited to companies with high product diversity than companies with single product line.

Answer 1

Answer: The answer is Activity based costing is more suited to companies with high product diversity than companies with single product line..

Explanation: Activity-based costing (ABC) system assigns overheads to each activity other than cost centres. It allows the establishment of many ABC cost centres (otherwise known as cost pools), to which overhead costs are assigned.

ABC comprises cost drivers identification, which cause the costs of an organization's major activities.

With increase in the complexity of manufacturing processes, including wider product ranges and shorter life cycles, ABC takes into consideration these complexities with their multiple cost drivers.