Question

Which of the following statements is true with regard to activity-based costing rates?

A. They allocate costs uniformly across all activities.
B. They are based solely on direct labor hours.
C. They enhance accuracy in assigning overhead costs.
D. They are unrelated to production processes.

Answer 1

The correct statement with regard to activity-based costing rates is that they enhance accuracy in assigning overhead costs.

Step-by-step explanation:

The correct statement with regard to activity-based costing rates is C. They enhance accuracy in assigning overhead costs.

Activity-based costing (ABC) is a costing method that allocates overhead costs to specific activities. ABC rates are determined based on the cost drivers of each activity, such as machine hours, setups, or orders. By using more precise measures of activity consumption, ABC enhances accuracy in assigning overhead costs.

For example, let's say a company has two products: Product A, which requires more machine time, and Product B, which requires more setups. With ABC, the company can assign overhead costs more accurately by using different rates for machine hours and setups, reflecting the actual cost drivers for each product.