Certified Professional Category Analyst (CPCA) Practice Questions 2026 – All-In-One Guide to Exam Success

Activity-based costing (ABC) is designed to provide a more accurate method of allocating costs to products and services by identifying the activities that drive costs rather than simply spreading costs evenly across all products or services.

The correct answer highlights how ABC distinguishes between direct costs, which can be traced directly to a product, and indirect overhead costs, which are not directly attributable to specific products but still impact overall profitability. By focusing on activities that incur costs, this methodology allows businesses to understand better how resources are consumed and how to manage overhead expenses associated with different activities. This nuanced view helps organizations make more informed pricing, budgeting, and financial decisions, ultimately leading to better resource allocation and improved profitability.

In contrast, other choices focus on aspects of costing that are either too narrow or not aligned with the full scope of activity-based costing. For instance, simply managing assortment or calculating variable costs alone doesn't encompass the comprehensive approach of analyzing both direct and indirect costs that ABC aims for.