- Cost.
- Does not conform to GAAP, thus, need 2 costing systems.
- Potential for managers to misinterpret the numbers.
- Managers want to fully allocate costs – ABC – does not do this.
- Resistance to Change. Recommended textbook explanations.
Which of the following is the limitation of activity-based costing Mcq?
Question: Multiple Choice Question 104 which of the following is a limitation of activity-based costing? Less control over overhead costs Poorer management decisions ABC can be expensive to use More cost pools Click if you would like to Show Work for this question: Open Show Work Question Atte y Study MacBook Pro 2 5 6.
Which of the following is a limitation to using Activity Based Costing?
A primary disadvantage of ABC is that it is not possible to divide some overhead costs such as the chief executive's salary on a per-product usage basis. (1) ABC will be of limited benefit if the overhead costs are primarily volume related or if the overhead is a small proportion of the overall cost.
What are disadvantages of Activity-Based Costing?
- Collection and preparation of data is time-consuming.
- Costs more to accumulate and analyze information.
- Source data isn't always readily available from normal accounting reports.
Which of the following is not a benefit of Activity-Based Costing?
Reduction of prime cost is not the benefit of the activity-based costing system. Explanation: In an activity-based cost system, a unique measure of cost is applied to the products and manufacturing items. A more accurate system of allocating the costs to the products is exercised in the ABC system.
What is the primary benefit of activity-based costing what are its limitations?
Activity-based costing provides a more accurate method of product/service costing , leading to more accurate pricing decisions. It increases understanding of overheads and cost drivers; and makes costly and non-value adding activities more visible, allowing managers to reduce or eliminate them.
How do you calculate activity-based costing?
The formula for activity-based costing is the cost pool total divided by cost driver, which yields the cost driver rate . The cost driver rate is used in activity-based costing to calculate the amount of overhead and indirect costs related to a particular activity.
Which of the following is the objective of Activity Based Costing?
ABC aims at rectifying the inaccurate cost information . It is modern approach of indirect cost allocation. ABC does not confined itself to the allocation to indirect costs to departments as it is done in the conventional costing but it identifies individual activity as the lowest unit for indirect cost allocation.
Which is a method of specific order costing?
Specific order costing is the category of basic costing methods applicable where the work consists of separate jobs, batches or contracts each of which is authorised by a specific order or contract. It includes job costing consisting batch costing and contract costing.
Which factor causes change in cost of activity?
An activity cost driver, also known as a causal factor , causes the cost of an activity to increase or decrease.
What are the 4 levels of activity used in ABC?
Four Levels of Activity
With activity-based costing, sometimes referred to as ABC, companies account for expenses by categorizing the source of the cost into one of four general groups: unit-based, batch-based, product-based, and facility-based costs .
What are the pros and cons of Activity Based Costing?
- Accurate Product Cost: ...
- Information about Cost Behaviour: ...
- Tracing of Activities for the Cost Object: ...
- Tracing of Overhead Costs: ...
- Better Decision Making: ...
- Cost Management: ...
- Use of Excess Capacity and Cost Reduction: ...
- Benefit to Service Industry:
What are three advantages of Activity Based Costing?
What are three advantages of activity-based costing over traditional volume-based allocation methods? More accurate product costing, more effective cost control, and better focus on the relevant factors for decision making .
What is direct and in direct cost?
A direct cost is a price that can be directly tied to the production of specific goods or services . A direct cost can be traced to the cost object, which can be a service, product, or department. Direct and indirect costs are the two major types of expenses or costs that companies can incur.
Which method of costing is applied in special ship building?
Job Order Costing : This method is adopted in job order industries like ship building, machine manufacturing, fabrication work etc. It is concerned with determining the cost of each individual job or contract.
Which of the following is an example of a high value added activity?
Which of the following is an example of a high-value-added activity? Shipping the customer's order . costs are examples of: ... Manufacturing overhead costs to products.
