Back Porch Company uses an activity-based costing system to allocate manufacturing conversion costs. How does this approach differ from traditional costing methods, and what advantages does it offer?
a) Traditional costing allocates costs based on direct labor hours, while activity-based costing assigns costs to specific activities and products based on their consumption of resources.
b) Activity-based costing and traditional costing both allocate costs based on direct labor hours, but activity-based costing provides a more accurate allocation by considering multiple cost drivers.
c) Traditional costing and activity-based costing yield the same results, but activity-based costing is more complex and time-consuming.
d) Activity-based costing is a simplified method compared to traditional costing and is only suitable for small businesses.