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

question 121

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 labour-based costing system.
• B) Changing from a traditional direct labour-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.

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Definitions:

Income Statement

A document detailing a firm's income, expenditures, and profit during a certain timeframe.

Operating Leverage

refers to the extent to which a firm utilizes fixed costs in its cost structure, influencing how changes in sales volume affect operating income.

Net Operating Income

This is a company's income after all operating expenses, excluding financial expenses and taxes, have been deducted from total revenue.

Operating Leverage

The degree to which a company's net income can be affected by a change in sales, influenced by the proportion of fixed costs in a company's cost structure.