CA Intermediate · Cost and Management Accounting · Activity Based Costing
Which statement about Activity Based Costing is correct?
ABC can reveal that low-volume, complex products are under-costed by traditional absorption, because it traces support activity costs to the products that actually use them instead of spreading overheads on volume.
- AIt assigns all overheads on direct labour hours
- BIt is most beneficial when overheads are a small share of total cost and products are uniform
- CIt treats only unit-level activities as cost-causing
- DIt can show that low-volume, complex products are under-costed by traditional absorptionCorrect
Explanation
ABC links overheads to batch, product and facility-level activities, so complex low-volume products that consume many support activities are revealed as under-costed by volume-based absorption. The other statements describe traditional costing or reverse the conditions where ABC is useful.
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