Facility-level activities and costs are considered product costs in activity-based costing.Select one:TrueFalse
Question
Facility-level activities and costs are considered product costs in activity-based costing.
Select one:
- True
- False
Solution
Answer
The statement is True.
In activity-based costing (ABC), costs are assigned to products or services based on the activities required to produce them. Facility-level activities, which include costs related to the overall operation of the facility (like factory rent, utilities, and maintenance), are indeed considered product costs because they are necessary for the production process. These costs are allocated to products based on the activities that take place within the facility that support the product's manufacturing.
ABC focuses on identifying the true costs of a product by breaking down expenses into specific activities and identifying how these activities consume resources. As a result, facility-level costs are not only relevant but essential for determining the overall profitability and pricing strategy for products in a more refined manner than traditional costing systems.
Similar Questions
Fill in the Blank QuestionFill in the blank question.In order for a service provider to use activity-based costing, they should classify costs by level.
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.
Fill in the Blank QuestionFill in the blank question. (Identifying, Assigning,Tracing) activities is the first step in applying activity-based costing.
The cost of a product in inventory under variable costing has elements of fixed overhead cost.Select one:TrueFalse
Tracing overhead costs to activities involves dividing overhead costs into:Cost poolsPool rateCost driversOverhead rates
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.