Activity-based costing improves on traditional absorption by:
AUsing multiple cost drivers
BUsing single rate
CIgnoring overheads
DTreating direct cost only
Answer & Solution
Correct answer: A. Using multiple cost drivers
1. Traditional absorption costing applies a single or limited set of rates.
2. Activity-based costing identifies activities consuming resources and assigns drivers to each.
3. Multiple cost drivers capture the way different products consume overhead differently.
4. Hence ABC improves precision via multiple cost drivers.
_Source: ICAI BoS Inter Paper 3, Ch 5 "ABC" §5.2 (cross-ref)_
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