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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_
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