Skip to content

CMA Final · Strategic Cost Management · Activity Based Cost Management

Under activity based cost management, an activity of 'rework of defective output' is classified as non-value-adding. Which action best reflects the ABM response?

The ABM response is to eliminate or reduce rework by fixing the root cause of defects. Rework adds no value the customer pays for, so the aim is to cut the waste itself rather than reallocate its cost or inflate driver volume.

  1. AEliminate or reduce the activity by fixing the root cause of defectsCorrect
  2. BReallocate its cost to products on machine hours
  3. CTreat it as a value-adding activity if customers pay for the final product
  4. DIncrease its cost driver volume to lower the rate per unit

Explanation

ABM seeks to reduce or eliminate non-value-adding activities through root-cause removal. Reallocating costs only changes the apportionment and does not cut waste. Raising driver volume reduces the rate but not the real cost, so it is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Activity Based Cost Management shows your real accuracy, how long you take and where you lose marks.

Practise Activity Based Cost ManagementFree diagnostic mock

More Activity Based Cost Management questions