alleryStart learning →One stated disadvantage of activity-based costing is that the method is:
ASimpler to set up first
BQuicker to set up first
CMore expensive to run
DMore popular with buyers
Answer & Solution
Correct answer: C. More expensive to run
1. Precision is not free.
2. There is a cost to collect and analyze cost driver information.
3. There is a further cost to allocate overhead across multiple cost drivers.
4. So ABC is more expensive than traditional allocation.
_Source: OpenStax Principles of Accounting Volume 2, Managerial Accounting (CC BY-NC-SA 4.0), Ch 6 'Activity-Based, Variable, and Absorption Costing', sections 6.1-6.5_
Keep practising Activity-Based Costing
Browse all Activity-Based Costing questions for US CMA Part 1, or explore more Management Accounting topics.
Related questions
Work the per-unit numbersAbsorption or variableTraditional versus ABCSort costs by their levelOrder the five ABC stagesMoving to activity-based costing tends to change the per-unit cost of low-volume products When the entire finished goods inventory is sold, net income under the two methods is:Fixed overhead is $12,000 and 10,000 units are made. Under absorption costing each unit ca