Fill in the Blank QuestionFill in the blank question.The basic principle of activity-based costing is that a(n) is what causes overhead cost to be incurred.

The basic principle of activity-based costing is that a(n) activity is what causes overhead cost to be incurred.

Explanation

Activity-based costing (ABC) is a managerial accounting method that assigns costs to products and services based on the activities they require. The underlying notion is that activities consume resources, and these activities are the drivers of overhead costs. For instance, if a company incurs costs for machine hours, setup hours, or inspections, these are all examples of activities that would drive the overhead costs allocated to products. By identifying the activities that lead to such costs, businesses can more accurately determine the true cost of each product or service, enabling better pricing and budgeting decisions. This approach provides a clearer picture of where resources are being consumed and can lead to improved operational efficiency and cost management.