Question

Nobs Company uses an ABC system. Which of the following statements is/are correct with respect to ABC?

I. Departmental costing systems are a refinement of ABC systems
II. ABC systems are useful in manufacturing, but not in merchandising or services industries
III. ABC systems can eliminate cost distortions because ABC develops cost drivers that have a cause-and-effect relationship with the activities performed

a. I, II and III are correct
b. II and III only are correct
c. III only is correct
d. None of the listed choices is correct
1) I, II and III are correct
2) II and III only are correct
3) III only is correct
4) None of the listed choices is correct

Answer 1

The correct answer to the question is that only statement III is correct, stating that ABC systems can eliminate cost distortions through cause-and-effect cost drivers.

Step-by-step explanation:

The statement III only is correct, which means that Activity-Based Costing (ABC) systems can eliminate cost distortions because they develop cost drivers with a cause-and-effect relationship with the activities performed. The other statements provided are incorrect:

• Statement I is incorrect because rather than being a refinement of ABC systems, departmental costing is less detailed and often precedes the adoption of ABC systems.
• Statement II is incorrect because ABC systems are also useful outside manufacturing, including in merchandising and service industries.