Question

the method of determining overhead allocation using absorption costing and that under activity-based costing differs because:

a. activity-based costing allocates costs to cost pools and traces costs to products based on cost driveres whereas absorption costing allocates costs to cost centers and then to products based on a measure of activity such as direct labor hours

b. activity-based costing can never accurately allocate overheads to products because the method of allocation is arbitrary whereas absorption costing is always more reliable because it uses predictable causes of overhead costs to trace those costs to products

c. absorption costing allocates costs to cost pools and traces costs to products bsed on cost drivers whereas activity based costing costs to cost centers then to products based on a measure of activity such as direct hours

d. absorption costing is based on a business wide allocation of overheads whereas activity based costing is based on a departmental or cost center allocation of overheads

Answer 1

Answer is a. Activity based costing allocates cost to cost pool and traces cost to product based on cost drivers whereas absorption costing allocates cost to cost centers and then to product based on a measure of activities such as direct labour hours.

Expplanation:

ABC costing accumulate cost in the various cost pool and then allocate the product based on cost drivers consumed by each product for the respective cost pool.

However, in Absorption costing, the cost are allocated on the basis of direct labour hours or machine hours.