You are concerned that your current single plantwide allocation rate is giving inaccurate results and would like to switch to an activity-based costing method.
Why is activity-based costing considered more accurate than traditional costing methods?
Allocating labor based on a single overhead base such as labor costs can distort costs because some workers are paid higher wages due to their advanced skills, which increases the direct labor costs on some products. The higher direct labor cost does not have a direct cause-and-effect relationship on overhead costs. Activity-based costing considers the resources (activities) each product actually uses, and therefore gives more accurate results.
You might also like to view...
________ is an organizational development (OD) technique that uses a questionnaire to gather data that are used as the basis for change.
Fill in the blank(s) with the appropriate word(s).
The difference between sales and variable costs is called:
A) net income. B) gross profit C) contribution margin. D) cost of goods sold.
The firm's cost of retained earnings is ________. (See Table 9.1 )
A) 10.2 percent B) 13.9 percent C) 13.7 percent D) 13.6 percent
At Pronto, a discount store chain, if the shelf price is not on an item, checkout clerks can take the customer's word for prices up to $20. The customer does not have to wait for the clerk to check the price with someone on the floor. By giving its employees the authority to make decisions on the customer's behalf, Pronto is:
A. Including employees in the company vision B. Promoting teamwork C. Developing service-oriented internal processes D. Measuring and rewarding strong service performers E. Empowering employees