Question

Which of the following statements describing a key reason for product cost differences between simple costing systems and ABC systems is​ true?
A. An ABC approach attempts to use cost drivers as the allocation base for indirect​ costs, whereas a simple costing system generally does not.
B. An ABC costing system generally utilizes one or very few indirect cost pools to allocate​ costs, where a simple costing system uses multiple indirect cost pools to allocate costs.
C. The ABC costing system has more indirect costs than a simple costing​ system, which classifies as many indirect costs as direct costs as possible.
D. An ABC approach focuses on the units of output as the fundamental cost​ objects, whereas a simple costing system generally does not.

Answer 1

Answer:

The correct answer is A. An ABC approach attempts to use cost drivers as the allocation base for indirect​ costs, whereas a simple costing system generally does not.

Explanation:

The main difference between the traditional cost system and the ABC cost system is that: the traditional cost system treats all fixed and direct costs as if they were variable and the ABC cost system allows detailed monitoring of the flow of activities, in the organization by creating links between activities and cost objects.

The objectives of ABC costing are:

1. Measure the costs of the resources used when developing activities in a business or entity.
2. Describe and apply their conceptual development showing their scope in management accounting.
3. To be a measure of performance, which allows to improve satisfaction objectives and eliminate waste in operational activities.
4. Provide tools for business planning, profit determination, control and cost reduction and strategic decision making.
5. It is the most rational cost allocation to improve the integrity of the cost of products or services. It foresees a closer confrontation or equalization of costs and their benefits, combining the theory of absorbing cost with that of variable costing, offering something more innovative.