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 labor 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

Although ABC can provide more accurate costing information, the method can be expensive to implement and may result in higher measurement costs, which can deter some companies from using it. A and B are incorrect because the benefits and limitations of using ABC depend on the specific circumstances of each company. C is incorrect because companies with a high-proportion of non-unit-level costs (such as overhead costs) may benefit the most from using ABC to accurately allocate those costs to products or services.

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