CA Inter P4 · Chapter 5 · Question 1 of 8
In activity based costing, the most appropriate cost driver for the purchasing activity is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Number of purchase orders placed
Explanation
A cost driver is the factor that causes the cost of an activity. The cost of the purchasing department (raising orders, following up suppliers) varies with the number of purchase orders, not with production volume or labour hours.
More Activity Based Costing MCQs
- Q3Which of the following is an example of a facility-sustaining activity?
- Q4Total set-up costs are ₹2,40,000 for 120 set-ups during the period. Product M is produced in 18 set-ups and its output is 9,000 units. The…
- Q5A company identifies three activities: Machining ₹6,00,000 (driver: 30,000 machine hours), Set-ups ₹1,50,000 (driver: 60 set-ups) and…
- Q6Activity based costing is likely to give the greatest improvement in product cost accuracy over traditional absorption costing where:
- Q7Using ABC information to identify and eliminate non-value-added activities, so as to reduce cost without reducing value to the customer…