Which statement correctly contrasts activity-based costing (ABC) with marginal costing?

Which statement correctly contrasts activity-based costing (ABC) with marginal costing?

• A. ABC ignores resource consumption.
• B. Marginal costing traces resource consumption to activities.
• C. ABC traces resource consumption to activities and costs outputs; marginal costing focuses on variable costs for decision making.
• D. Marginal costing uses full absorption of fixed overheads.

Answer: (C)

Activity-based costing works by tracing how resources are used by activities and then linking those costs to products through activity cost drivers. This shows exactly how much resource consumption each product causes. Marginal costing, by contrast, is concerned with costs that change with output in the short term—primarily variable costs—while fixed overhead is treated as a period cost and not allocated to individual products. So the best statement captures both ideas: ABC traces resource consumption to activities and outputs, while marginal costing focuses on variable costs for decision making. The other notions don’t fit because ABC does not ignore resource use, marginal costing does not trace resource consumption to activities, and marginal costing does not apply full absorption of fixed overheads.

Activity-based costing works by tracing how resources are used by activities and then linking those costs to products through activity cost drivers. This shows exactly how much resource consumption each product causes. Marginal costing, by contrast, is concerned with costs that change with output in the short term—primarily variable costs—while fixed overhead is treated as a period cost and not allocated to individual products. So the best statement captures both ideas: ABC traces resource consumption to activities and outputs, while marginal costing focuses on variable costs for decision making. The other notions don’t fit because ABC does not ignore resource use, marginal costing does not trace resource consumption to activities, and marginal costing does not apply full absorption of fixed overheads.