Which of the following statements best completes this sentence: 'Activity-based costing'

A) asserts that cost behaviour can best be determined if the split between fixed and variable cost is ignored.
B) has replaced standard costing as the preferred method of allocating costs to products.
C) is based on allocating fixed overheads based on the elements that drive them.
D) emphasises the need to obtain a better understanding of the behaviour of overhead costs.

Question

Cristian Rahming · Accepted Answer

Final Answer : D, Explanation :  Activity-based costing (ABC) emphasizes the need to obtain a better understanding of the behaviour of overhead costs by identifying the activities that drive those costs and assigning those costs more accurately to the products or services that benefit from those activities. Option A is incorrect because ABC does consider the split between fixed and variable costs. Option B is incorrect because while ABC has gained popularity, it has not completely replaced standard costing. Option C is partially correct, as ABC does allocate overhead costs based on the drivers of those costs, but it also allocates variable and other indirect costs.

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