Question

Activity-based budgeting ________.*

A) uses one cost driver such as direct labor-hours
B) uses only output-based cost drivers such as units sold
C) focuses on activities necessary to produce and sell products and services
D) classifies costs by functional area within the value chain"

Answer 1

Option (C), Activity-based budgeting is a method that focuses on all the activities necessary to produce and sell a product or service, accounting for both variable and fixed costs associated with production.

Step-by-step explanation:

Activity-based budgeting focuses on activities necessary to produce and sell products and services. Unlike traditional budgeting methods that might use one cost driver such as direct labor-hours or only output-based cost drivers such as units sold, activity-based budgeting examines all the costs associated with the activities required to make a product or service. It's a methodology that recognises that variable costs, such as labor and raw materials, change depending on the level of output. Fixed costs, like rent on a factory, remain constant regardless of output.

This budgeting method takes into account the direct relationship between the costs involved in producing goods or services, whether they're cars or computer software, as labor and raw materials are often the main variable costs. The approach seeks to allocate costs more accurately to products and services thereby allowing organizations to better understand where to focus their cost optimization efforts.