Which of the Following Is True Regarding Activity-Based Costing (ABC)

question 44

Multiple Choice

Which of the following is true regarding activity-based costing (ABC) ?

• A) The benefits of using ABC always outweigh its limitations.
• B) The lower the proportion of overhead costs as compared to direct materials and direct labor costs, the more likely a company will benefit by using ABC.
• C) Companies with a high-proportion of non-unit-level costs should rarely use ABC.
• D) High measurement costs associated with ABC may deter some companies from its use.

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Definitions:

Cross-Price Elasticity

A measure used in economics to show how the quantity demanded of one good changes in response to a change in the price of another good.

Inferior Goods

Goods for which demand decreases as the income of the consumer increases, opposite to normal goods.

Normal Goods

Goods for which demand increases as consumers' income increases, holding all other factors constant.

Cross-Price Elasticity

A measure of how the quantity demanded of one good changes in response to a price change of another good.