Question

An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because: Multiple Choice under activity-based costing some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs) will not be assigned to products. under activity-based costing the sum of all product costs does not equal the total costs of the company.Incorrect activity-based costing has not been approved by the United Nations International Accounting Board. activity-based costing results in less accurate costs than more traditional costing methods based on direct labor-hours or machine-hours.

Answer 1

Answer:

The options for this question are the following:

A. some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs) will not be assigned to products.

B. some non-manufacturing costs are assigned to products.

C. first-stage allocations may be based on subjective interview data.

D. all of the above are reasons why an activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles

The correct answer is D. all of the above are reasons why an activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles.

Explanation:

The ABC Activity Based Costing system is a model that allows the allocation and distribution of the different indirect costs, according to the activities carried out, since it is these that actually generate costs. This system arises from the need to solve the problem that standard costs normally present, when they do not accurately reflect the value added chain in the elaboration of a specific product or service, and therefore, an adequate determination of the price.

The ABC cost model assigns and distributes indirect costs according to the activities carried out in the product or service elaboration process, identifying the origin of the cost with the necessary activity, not only for production but also for its distribution and sale; The activity is understood as the set of actions that aims to incorporate added value to the product through the elaboration process. Complementing the definition of activity, it should be mentioned that the ABC Model is based on the fact that products and services consume activities, and these in turn are the generators of costs.

Answer 2

Answer:

under activity-based costing some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs) will not be assigned to products.

Explanation:

ABC costing system is not compliant with US GAAP for two major reasons:

1. ABC systems do not assign all manufacturing costs to the products, e.g. factory security, heating or air conditioning, rent, etc., are generally considered fixed costs that will be incurred regardless of products being manufactured or not.
2. ABC costing system assigns non-manufacturing costs to products and that is specifically prohibited by US GAAP, e.g. costs associated to the supply chain transactions like phone calls, trips to visit vendors, etc.

The other 3 options are wrong  because:

• under activity-based costing the sum of all product costs does not equal the total costs of the company. SOME COSTS ARE EXCLUDED WHILE OTHERS ARE INCLUDED, BUT THEIR SUM COULD THEORETICALLY BE EQUAL.
• activity-based costing has not been approved by the United Nations International Accounting Board. US GAAP ONLY WORKS IN THE US, IT DOES NOT COMPLY WITH INTERNATIONAL STANDARDS.
• activity-based costing results in less accurate costs than more traditional costing methods based on direct labor-hours or machine-hours. ABC COSTING IS GENERALLY MUCH MORE ACCURATE THAN OTHER COSTING METHODS