Discussion
In ................. system, costs are first traced not to activities but to an organisational unit such as department or plant and then to product.
Answer: A
This describes traditional costing.
In traditional absorption costing, overheads are first allotted and apportioned to organisational units such as departments, plants or cost centres, and then absorbed into products at a departmental rate, often per labour hour or machine hour.
Activity based costing does the opposite of what the stem says: it traces costs first to activities (set-ups, inspections, orders) and then to products by cost drivers. Target costing starts from a market price less a required margin, and Kaizen costing seeks continuous small cost reductions during production; neither is a tracing system of this kind.
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