It ONLY makes sense to implement an ABC system when: A. ABC provides information to make better decisions. B. Its benefits exceed implementation costs. C. ABC traces more costs as direct costs. D. There is a strong cause-and-effect relationship between costs in the cost pools and their cost-allocation bases.
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The statement that best aligns with the rationale for implementing an Activity-Based Costing (ABC) system is:
D. There is a strong cause-and-effect relationship between costs in the cost pools and their cost-allocation bases.
Activity Based Costing (ABC) aims to allocate indirect costs to products or services based on activities that cause these costs. It seeks to establish a more accurate cost allocation by identifying and tracing costs to activities and then to cost objects (such as products or services) based on the cause-and-effect relationship between the costs and the activities. This helps in achieving a more precise understanding of the costs involved in producing goods or delivering services.