Which of the Following Is Not a Limitation of Activity-Based

question 31

Multiple Choice

Which of the following is not a limitation of activity-based costing?

• A)Maintaining an activity-based costing system is more costly than maintaining a traditional direct labor-based costing system.
• B)Changing from a traditional direct labor-based costing system to an activity-based costing system changes product margins and other key performance indicators used by managers.Such changes are often resisted by managers.
• C)In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activity-based costing system.This results in overstated costs.
• D)More accurate product costs may result in increasing the selling prices of some products.
• E)All of the choices are not limitations of activity-based costing.

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Definitions:

Joint Costs

Costs incurred in producing products up to a split-off point, where multiple products are generated from the same process and the costs cannot be separately identified for each product.

Physical Units Method

This method calculates the cost per unit of production based on the physical units produced, commonly used in inventory costing and job costing.

Split-Off Point

The stage in a production process where multiple products become separately identifiable.

Overhead Costs

Expenses that are not directly tied to a specific product or service but are necessary for running a business, such as rent and utilities.