Which statement describes activity-based costing accurately?

Activity-based costing (ABC) is a method that assigns costs to specific activities related to the production of goods or services. This approach provides a more accurate reflection of the true costs incurred in the creation of products by linking overhead costs to the activities that generate them. This means that instead of spreading costs evenly across all products or services, ABC looks at the actual activities that consume resources, allowing companies to determine where they are spending money and to identify potential efficiencies.

Using ABC allows businesses to gain insights into their operational processes, helping them to understand which activities add value and which do not. This is particularly beneficial for complex organizations with diverse product lines or services, as it can pinpoint high-cost activities and highlight areas for potential improvement.

The other statements do not accurately capture the essence of activity-based costing. For example, it is not a universal allocation method, as its application can be heavily dependent on the specific context and structure of a company. Additionally, while ABC does relate costs to products, it is not simply a matter of assigning all company expenses to revenue-generating products indiscriminately, nor does it focus on isolating fixed costs from variable costs in its methodology. Instead, ABC seeks to offer a more nuanced perspective on cost drivers within the organization's activities.