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Which of the following is not a limitation of activity-based costing
A) Implementing an activity based costing system is more costly than implementing a traditional direct labour-based costing system.
B) In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activity based costing system. This results in overstated costs.
C) More accurate product costs may result in better decisions.
D) Changing from a traditional direct labour based costing system to an activity-based costing system changes product margins and other key performance indicators used by managers.
Activity-based Costing
An accounting approach which attributes overheads and indirect costs to specific activities related to production, offering more precise cost information.
Limitation
A restriction or boundary that defines the scope or extent of something, such as a study or a project.
Direct Labour-based Costing System
A method of cost accounting that allocates expenses based primarily on the direct labor hours incurred in producing a product or delivering a service.
- Understand the impediments and challenges faced when deploying activity-based costing.
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Learning Objectives
- Understand the impediments and challenges faced when deploying activity-based costing.
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