Asked by Emily Ratliff on Jun 03, 2024
Verified
Which of the following are limitations of ABC?
i. The system requires significantly more data.
ii. The system requires extensive updating if the product range changes.
iii. The inclusion of facility level costs greatly increases the accuracy of cost per unit.
A) i and ii
B) i and iii
C) i, ii and iii
D) None of the given answers
ABC Limitations
Challenges and constraints of Activity-Based Costing, such as its complexity and the potential for inaccurate cost allocation.
Facility Level Costs
Costs that are incurred to maintain the operation of a facility as a whole, rather than specific products or services, such as rent, utilities, and property taxes.
Product Range
The variety of different items or models of a product offered by a company or available within a market.
- Comprehend the strengths and weaknesses of activity-based costing.
- Identify behavioral and implementation issues related to the adoption of activity-based costing in organizations.
Verified Answer
ii. The system requires extensive updating if the product range changes: If new products or changes are introduced, the entire ABC system may need to be updated, which can be time-consuming and costly.
iii. The inclusion of facility level costs greatly increases the accuracy of cost per unit: This is a benefit of ABC, not a limitation. Including facility-level costs, such as maintenance and rent, can provide a more accurate picture of the true cost of producing a product.
Learning Objectives
- Comprehend the strengths and weaknesses of activity-based costing.
- Identify behavioral and implementation issues related to the adoption of activity-based costing in organizations.
Related questions
Despite the Obvious Advantages of ABC, Many Firms Are Still ...
Which of the Following Are Indicators of an Outdated Costing ...
ABC Seeks to Identify the _______________ That Measure the Activities ...
Activity-Based Costing Is Only Useful in Allocating Manufacturing Overhead Costs
Activity-Based Costing Has Most to Offer Where ...