Question

Which statement is not correct?

1) An activity driver is a means to measure the activity used by the cost object
2) Cost object describes the work performed in a firm
3) Activities cause costs
4) Cost objects create a demand for activities

Answer 1

The incorrect statement is that a cost object describes the work performed in a firm, when in fact it represents something for which costs are compiled. An activity driver measures the activity used by the cost object, and activities cause costs because they consume resources, with cost objects creating a demand for those activities.

Step-by-step explanation:

The statement that is not correct is: 2) Cost object describes the work performed in a firm. This statement is incorrect because a cost object is something for which a cost is compiled, such as a product, service, project, customer, or activity, rather than the work itself.

On the other hand, an activity driver is indeed a measure of the frequency and intensity of the demands placed on activities by cost objects, which aligns with statement 1). Activities do indeed cause costs (statement 3) because they are the actions or transactions that consume resources. Finally, cost objects create a demand for activities (statement 4), which is true because the production of a cost object (like a product or service) will necessitate various activities that incur costs.