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:

Induced Consumption

Consumer spending that increases as disposable income rises, and decreases as disposable income falls, unrelated to the level of interest rates.

Wealth Effect

The change in spending that accompanies a change in perceived wealth, typically when home values or investment portfolios increase.

Induced Consumption

Describes consumer spending that increases when income increases and decreases when income decreases, directly related to the level of disposable income.

Average Propensity

The proportion of total income or revenue that is spent on a certain category of expenditures or savings.