Final answer:
Signs that an ABC system provides maximum benefit include high overhead costs, inaccurate product costing, and a need for accurate and consistent product costing, which is especially beneficial in companies with diverse and complex product lines. Option A,B,C are correct.
Step-by-step explanation:
The subject question is asking about signs that may indicate an Activity-Based Costing (ABC) system provides maximum benefit.
Signs of Maximum Benefit from an ABC System
High overhead costs and overallocation of costs - This suggests that a more refined costing system like ABC could help in understanding and controlling overhead.
Inaccurate product costing and underallocation of costs - Where traditional costing may misallocate costs, ABC provides a more accurate product cost by allocating costs based on actual activities.
Accurate and consistent product costing - ABC systems are designed to provide more precise costing, leading to consistent and reliable cost information.
High product diversity and complexity - ABC benefits companies with a variety of products and complex processes as it more accurately assigns the costs of resources to the products and services that consume them.
Diseconomies of scale occur when a company becomes too large and difficult to manage, leading to high costs due to poor communication and workflow disruptions. Large, inefficient factories in planned economies, like those in the old Soviet Union, were shielded from competition, enabling their prolonged operation despite high costs. This contrasts with ABC systems which foster competitiveness through accurate cost control.
A cost/benefit analysis helps decision-making by comparing the additional costs and benefits of choices. This analysis allows for informed decisions by weighing the marginal costs against marginal benefits.