Question

A possible disadvantage of ABC may be:

a) It may give less accurate cost information.
b) It will have one rate for allocation used over the entire company.
c) It is a costly system to implement
d) None of the above

Answer 1

The disadvantage of Activity-Based Costing (ABC) is that it is a costly system to implement, as it requires the company to identify multiple cost drivers and create more detailed reports.

Step-by-step explanation:

The subject in question is Activity-Based Costing (ABC), which is a method used in business and accounting to allocate costs to products and services. A possible disadvantage of ABC mentioned is that it may be a costly system to implement. When referring to ABC, it would never have one rate for allocation used over the entire company (option b), rather it uses multiple cost pools to allocate overhead costs more accurately. Furthermore, ABC is designed to provide more accurate cost information as opposed to less (option a). Thus, the correct answer to the question would be (c) It is a costly system to implement. The complexity and detail involved in the ABC process often result in increased implementation costs, but it seeks to provide far more accurate cost information for decision-making.