Each of the Following Is a Limitation of Activity-Based Costing

question 92

Multiple Choice

Each of the following is a limitation of activity-based costing except that

• A) it can be expensive to use.
• B) it decreases control over overhead costs
• C) it is complex and can be difficult to understand
• D) some arbitrary allocations continue.

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Definitions:

Standard Cost

A predetermined cost of manufacturing, which is often used in budgeting and variance analysis.

Budgeted Amount

The estimated financial expenditure or revenue for a specific period, often used as a plan or guideline for managing finances.

Overhead Volume Variance

The difference between the budgeted overhead costs and the actual costs incurred, due to changes in the level of production or activity.

Fixed Overhead

Fixed Overhead refers to the indirect costs of production that do not vary with the volume of production, such as salaries of managers, rent of factory, and depreciation of equipment.