What is one of the advantages of using activity-based costing (ABC)?

Using activity-based costing (ABC) offers the significant advantage of providing more accurate product line costings. This method enhances the accuracy of cost attribution by identifying specific activities that contribute to overhead costs and linking those activities directly to the production of individual products. This means that costs are allocated based on actual usage and consumption of resources rather than through broad averages or arbitrary distributions.

This precision allows businesses to understand the true cost drivers associated with their activities, leading to better decision-making regarding pricing, product mix, and profitability analysis. As a result, companies can identify underperforming products or services more effectively, allowing for strategic adjustments that optimize financial performance.

The other options do not accurately describe the primary benefits of ABC. While reduced total production costs may result indirectly from more informed management decisions, it is not a direct advantage of the system. Similarly, using ABC does not inherently require less overhead data; rather, it may require more detailed data on activities. Finally, while ABC improves the accuracy of cost allocations, it does not necessarily simplify the allocation process itself, as it involves a more detailed analysis of multiple cost drivers and activities.