What type of costs should be excluded from activity-based costing calculations?

In activity-based costing (ABC), the focus is on accurately assigning costs to products based on the activities that drive those costs. The essence of ABC is to provide a more precise method of allocating costs, particularly indirect costs, by linking them to specific activities.

When considering the options, the assertion that all costs should be included is grounded in the principle that ABC embodies a comprehensive approach to cost allocation. This means that while direct costs (like direct labor and materials) are easily traceable to specific products, indirect costs—such as overhead—are also essential to understand the total cost structure.

In ABC, excluding any costs—whether they are indirect manufacturing costs, direct labor, or costs related to distribution—could lead to an incomplete understanding of product profitability and decision-making. ABC seeks to ensure that all relevant costs associated with the creation, distribution, and support of products are considered to provide a clearer picture of cost behavior and product profitability.

Thus, stating that none of the costs should be excluded highlights the need for a holistic view of all cost components, ensuring that every element affecting product cost is accounted for in a manner that accurately reflects the consumption of resources by activities. This approach ultimately aids in more informed pricing and budgeting decisions.