Question

Which of the following statements are true regarding activity-based costing?

A) Costs are allocated based on a pre-determined overhead rate for each cost pool

B) Transitioning from traditional costing methods to Activity-Based Costing is a relatively simple process that most companies complete quickly.

C) Activity-Based Costing results in a different amount of total overhead applied than under traditional costing methods.

D) Activity-Based costingoriginated in the early 1900's

Using traditional costing rather than Activity-Based Costing might lead to which of the following problems?

A) overpricing products

B) under-pricing products

C) discontinuing profitable operations

D) all of the above

Answer 1

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Which of the following statements are true regarding activity-based costing?	Correct Answer	Remarks
A) Costs are allocated based on a pre-determined overhead rate for each cost pool	Correct	In ABC, for each cost/activity pool, activity rate is being calcualted.
B) Transitioning from traditional costing methods to Activity-Based Costing is a relatively simple process that most companies complete quickly.	Wrong	Transition is not very easy and time consuming process to identify and quntify cost pool
C) Activity-Based Costing results in a different amount of total overhead applied than under traditional costing methods.	Wrong	Total Overhead will remain same in both, just allocation to production costing changes
D) Activity-Based costingoriginated in the early 1900's	Wrong
Using traditional costing rather than Activity-Based Costing might lead to which of the following problems?	Correct Answer	Remarks
A) overpricing products
B) under-pricing products
C) discontinuing profitable operations
D) all of the above	Correct Answer	Traditional costing and ABC, difference is in allocation of overehads on product cost. Incorrect method will lead incorrec cost