Question

True or false. Activity-based costing helps to refine the overhead costs assigned to a product.

A) True
B) False

Answer 1

False. Activity-based costing (ABC) helps to refine the allocation of overhead costs to products by considering multiple cost drivers and identifying specific activities that contribute to production.

Step-by-step explanation:

False. Activity-based costing (ABC) is a costing method that helps to refine the allocation of overhead costs to products. It does this by identifying and assigning costs to specific activities that contribute to the production of a product or service.

Instead of simply allocating overhead costs based on a single cost driver, like direct labor hours or machine hours, ABC considers multiple cost drivers such as setups, inspections, or customer orders, which are more representative of the actual consumption of resources.

By using ABC, businesses can gain a more accurate understanding of the costs involved in producing a product, and therefore make more informed decisions regarding pricing, product mix, and process improvements.