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What is the primary benefit of using activity-based costing (ABC)?

Practice Questions

Q1
What is the primary benefit of using activity-based costing (ABC)?
  1. It simplifies the costing process
  2. It provides more accurate product costing
  3. It reduces the number of cost pools
  4. It eliminates the need for variance analysis

Questions & Step-by-Step Solutions

What is the primary benefit of using activity-based costing (ABC)?
  • Step 1: Understand that costing is how we figure out how much it costs to make a product.
  • Step 2: Know that traditional costing methods might not show the true cost of making a product.
  • Step 3: Learn that activity-based costing (ABC) looks at the actual activities involved in making a product.
  • Step 4: Realize that ABC assigns costs based on these activities, rather than just spreading costs evenly.
  • Step 5: Conclude that the primary benefit of ABC is that it gives a more accurate picture of product costs.
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