Activity-Based Costing Enhances Cost Accuracy

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Question:

How does activity-based costing contribute to more accurate cost allocation? Question 6Answer a. By allocating all costs directly to products b. By ignoring indirect costs c. By allocating costs based on activities and cost drivers d. By minimizing production efficiency

Answer:

The correct answer is:

c. By allocating costs based on activities and cost drivers

Activity-based costing (ABC) improves cost allocation accuracy by identifying the specific activities that contribute to overhead costs and assigning those costs to products based on their actual consumption of those activities. This method provides a more precise understanding of the costs associated with producing a product or service.