ACCA PM · Chapter 2 · Question 6 of 9
In which of the following situations is activity-based costing most likely to give significantly different product costs from traditional absorption costing?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Overheads are a large proportion of total cost and products differ widely in batch sizes and complexity
Explanation
ABC adds most value when overheads are significant and are driven by factors other than volume, such as the number of batches, orders or design changes. If products are similar or overheads vary with labour hours, a traditional volume-based rate gives broadly similar results.
More Activity-based costing MCQs
- Q8Quality inspection costs are budgeted at $90,000 for the year, with 600 inspections expected. Product Z will be produced in a run of 2,500…
- Q9Which of the following is a recognised limitation of activity-based costing?
- Q1Delta Co makes two products, X and Y. Budgeted overheads are: machine set-ups $120,000; materials handling $80,000; machining $200,000…
- 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…