Companies that use ABC allocate all costs including direct materials, direct labor and manufacturing overhead to the product based on an activity cost allocation rate.

True or False?

Companies that use ABC allocate all costs including direct materials, direct labour and manufacturing overhead to the product based on an activity cost allocation rate.

This statement is False.

Explanation:

In ABC, it is only the overhead that will be allocated to the product based on an activity cost allocation rate (cost drivers). Direct material cost and direct labour cost will be recorded at the actual cost incurred on direct material and direct labour.