CAF-5 · Chapter 3 · Question 2 of 10
Which of the following best describes the primary difference between Activity-Based Costing (ABC) and traditional overhead absorption?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) ABC assigns overheads to products using multiple cost pools and their specific cost drivers, rather than relying solely on production volume bases.
Explanation
Traditional costing often uses a single volume-based rate (like labour hours) which can distort product costs. ABC identifies multiple specific activities (cost pools) and assigns costs based on the actual consumption of those activities (cost drivers).
More Activity Based Costing MCQs
- Q4A manufacturing company incurs a total "Machining cost pool" of Rs. 36,000. If the total machine hours utilized during the period are…
- Q5Which of the following is the correct cost driver to allocate "Production scheduling cost"?
- Q6Giga Incorporations incurs a total "Paint stirring and quality control" overhead of Rs. 50,000. This cost is driven by the number of…
- Q7Continuing from the previous scenario, if Product G-101 is allocated Rs. 20,833 for paint stirring and the company produces exactly 500…
- Q8When applying Activity-Based Costing, which cost driver should logically be used to assign "Machine set-up costs" to various products?