Which of the following is true regarding activity-based costing (ABC)?
A) The benefits of using ABC always outweigh its limitations.
B) The lower the proportion of overhead costs as compared to direct materials and direct labour costs,the more likely a company will benefit by using ABC.
C) Companies with a high-proportion of non-unit-level costs should rarely use ABC.
D) High measurement costs associated with ABC may deter some companies from its use.

Question

Quizplus · Accepted Answer

While activity-based costing has its benefits, such as providing more accurate product costs, it also has limitations and can be costly to implement. High measurement costs associated with ABC may deter some companies from its use. Therefore, option D is the correct choice. Options A and B are incorrect because the benefits and applicability of ABC may vary depending on the company and its cost structure. Option C is also incorrect because companies with high-proportion of non-unit-level costs may benefit from ABC, as it can provide a better understanding of the cost drivers for these types of costs.

Which of the Following Is True Regarding Activity-Based Costing (ABC)