Traditional Costing and Activity-Based Costing

What is Traditional Costing primarily focused on?

• Allocating costs based on activity usage

• Allocating overhead costs using a single cost driver

• Understanding cost behavior through various activities

• Tracking direct material costs exclusively

Which cost allocation method does Traditional Costing often use?

• Multiple cost drivers

• Single overhead rate based on a single cost driver

• Activity-based costing rates

• • Variable cost analysis

What is a key characteristic of Activity-Based Costing (ABC)?

• Use of a single cost driver for overhead allocation

• Detailed tracing of overhead costs to specific activities

• Simplified cost allocation methods

• • Allocation of costs only to direct labor and materials

In Traditional Costing, how are overhead costs typically allocated?

• Based on the number of activities performed

• Proportionally based on direct labor hours or machine hours

• According to the complexity of the product

• Based on the specific activities involved

Which of the following is NOT a benefit of ABC?

• More accurate product costing

• Detailed cost information by activity

• Simplified costing for complex products

• Overhead costs are averaged over all products

Which of the following is a limitation of Traditional Costing?

• Complex and detailed cost allocation

• Overhead costs are often not accurately allocated to products

• Provides detailed activity-based insights

• Uses multiple cost drivers

In ABC, which cost driver would most likely be used for the cost of setting up machines?

• Number of units produced

• Number of machine setups

• Direct labor hours

• • Number of employees

What is the primary focus of Traditional Costing systems?

• Reducing the complexity of cost allocations

• Accurately tracking activity-based costs

• Assigning costs to activities rather than products

• • Distributing overhead costs using direct measures

How does ABC improve the accuracy of product costing?

• By using a single overhead rate for all products

• By tracking costs based on multiple cost drivers

• By averaging overhead costs across all products

• By ignoring indirect costs

Which of the following is an example of an activity-based cost driver?

• Direct material cost

• Direct labor cost

• Number of machine hours

• Total sales revenue