ACCA PM · Chapter 2 · Question 9 of 9
Which of the following is a recognised limitation of activity-based costing?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Some overheads, such as factory rent, have no clear activity driver and must still be apportioned arbitrarily
Explanation
Facility-sustaining costs such as rent or the factory manager's salary are not caused by any particular product, so ABC must still spread them on an arbitrary basis. ABC also costs more to implement and maintain. It is used in both manufacturing and service organisations, and it reallocates rather than reduces total overheads.
More Activity-based costing MCQs
- Q2Delta Co makes two products, X and Y. Budgeted overheads are: machine set-ups $120,000; materials handling $80,000; machining $200,000…
- Q3Delta Co makes two products, X and Y. Budgeted overheads are: machine set-ups $120,000; materials handling $80,000; machining $200,000…
- Q4Delta Co makes two products, X and Y. Budgeted overheads are: machine set-ups $120,000; materials handling $80,000; machining $200,000…
- Q5In activity-based costing, what is a cost driver?
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