Consider the following accounting case study:

A manufacturing company, XYZ Corp, produces widgets. The company has been facing challenges in its cost accounting system, particularly in understanding the true cost of production and the profitability of each product line. As part of a comprehensive review, the accounting team is tasked with evaluating the current cost accounting practices and recommending improvements.

The company uses a traditional costing system, allocating overhead costs based on direct labor hours. However, the management suspects that this method may not accurately reflect the actual consumption of overhead resources by different products. Additionally, there are concerns about the relevance of the cost information provided by the existing system for decision-making purposes.

The accounting team is also exploring the possibility of implementing activity-based costing (ABC) as an alternative method to allocate overhead costs. ABC identifies various activities in the production process and allocates costs based on the actual consumption of these activities by each product.

Questions:

Given the challenges faced by XYZ Corp in understanding the true cost of production and product profitability, explain the limitations of the traditional costing system that allocates overhead costs based on direct labor hours.

Describe the key features of activity-based costing (ABC) and how it differs from the traditional costing system.

Considering the case study, propose specific benefits that XYZ Corp might experience if it transitions from the traditional costing system to activity-based costing (ABC).

Now, let's focus on the last topic, Cost Accounting. In the context of XYZ Corp's manufacturing operations, which of the following statements regarding cost accounting is correct?

A. Cost accounting only involves tracking direct costs related to production.

B. Cost accounting is primarily concerned with financial reporting and compliance.

C. Cost accounting helps in capturing and analyzing all costs associated with the production process, including direct and indirect costs.

D. Cost accounting is irrelevant for manufacturing companies and is more applicable to service-oriented businesses.

Choose the correct option and provide a brief explanation for your choice.