In cost accounting, how does Activity-Based Costing (ABC) allocate indirect manufacturing overhead to products?
Answer and explanation
Correct answer: B. By assigning overhead costs to specific business activities and then to products based on activity consumption
- Step 1: Activity-Based Costing identifies individual cost pools (e.g. machine setups, quality inspections) and assigns indirect overhead costs to products based on the actual driver units consumed by each product. Answer: By assigning overhead costs to specific business activities and then to products based on activity consumption. Why not the others: Equal distribution ignores cost differences, ministries do not mandate internal cost accounting formulas, and allocating solely by labor hours is traditional volume-based costing.
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