Question

Using ABC product cost information when considering reducing cost, which of the following would be recommended?...

Using ABC product cost information when considering reducing cost, which of the following would be recommended?

a.Using an activity-based approach with multiple overhead allocation rates

b.Switching to a plantwide allocation rate

c.Improving operations so that the activity-base usage per unit is increased

d.Improving operations so that the raw material usage per unit is eliminated

Business   Accounting   
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Homework Answers

Answer #1

Activity based costing identifies the activities which cause cost to be incurred and searches for fundamental cost drivers of these activities. Once these activities and cost drivers have been indentified this information can be used to assign overhead to cost object which have actually caused cost to be incurred.

Therefore, Using ABC product cost information when considering reducing cost, using an activity-based approach with multiple overhead allocation rates is recommended.

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