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CA Intermediate · Cost and Management Accounting · Activity Based Costing

Which of the following is a limitation of Activity Based Costing rather than a benefit?

The high cost and effort of implementing and maintaining ABC is a recognised limitation, because it requires identifying many activities, cost pools and drivers and collecting data on them. The other options, such as accurate costing and spotting non-value-adding activities, are benefits.

  1. AIt gives more accurate product costs where overheads are high relative to direct costs
  2. BIt helps identify non-value-adding activities
  3. CIt is costly to implement and maintain because of the data required on many activitiesCorrect
  4. DIt improves pricing decisions for diverse product ranges

Explanation

ABC needs identification of activities, cost pools and drivers and continuous data collection, making it expensive and time consuming. The other options are recognised benefits of ABC.

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