Question

Which of the following statements is true?

An activity-based costing system is generally easier to set up and run than a traditional cost system.

When combining activities in an activity-based costing system, activities should be grouped together at the same level. For example, batch-level activities should NOT be combined with unit-level activities.

Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labor-hours.

In activity-based costing, a plantwide overhead rate is used to apply overhead to products.

Answer 1

Correct Answer---When combining activities in an activity-based costing system, activities should be grouped together at the same level. For example, batch-level activities should NOT be combined with unit-level activities.

Explanation

All the other three statements are false. In activity based costing cost pool is prepared and cost is assigned on the basis of level of activity in a particular product. Predetermine overhead rate is not used in Activity based costing.

It is generally a hard task to setup Activity based costing system because all the activities have to be recognized and usage of those activities by different jobs need to be calculated.

In activity based costing all the activities are grouped together in same level.