Which of the following statements is incorrect?

(A) An activity-based costing system uses more cause-and-effect relationships in tracing costs than does a traditional cost allocation system.

(B) An activity-based costing system first assigns or traces costs to the departments in which products are made.

(C) The hierarchical categories into which activities are grouped are unit-level, batch-level, product-level and facility-level activities.

(D) The total amount of unit-level costs changes in proportion to the number of units of product made.

Question

Business

Ruger

26 October, 17:59

Which of the following statements is incorrect?

(A) An activity-based costing system uses more cause-and-effect relationships in tracing costs than does a traditional cost allocation system.

(B) An activity-based costing system first assigns or traces costs to the departments in which products are made.

(C) The hierarchical categories into which activities are grouped are unit-level, batch-level, product-level and facility-level activities.

(D) The total amount of unit-level costs changes in proportion to the number of units of product made.

+3

Answers (1)

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Alvaro Ross · Answer 1

(B) An activity-based costing system first assigns or traces costs to the departments in which products are made.

Explanation:

As under activity based costing, firstly all the activities and then the cost related to them are identified, then the respective cost drivers are traced in order to allocate such cost.

Under this system the cost are not traced on departments, rather firstly they are properly identified, and the respective cost drivers are identified.

As department wise allocation is done in traditional costing system, and not in the activity based costing, where activities are identified and not the departments.

Therefore, statement B is incorrect.