Which of the following is not a limitation of activity based...

Which of the following is not a limitation of activity-based costing? a. Changing from a traditional direct labor-based costing system to an activity-based costing system changes product margins and other key performance indicators used by managers. Such changes are often resisted by managers. b. Maintaining an activity-based costing system is more costly than maintaining a traditional direct labor-based costing system. c. In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activity-based costing system. This results in overstated costs. d. More accurate product costs may result in increasing the selling prices of some products.

Transcript

00:01 Hello students, here is a question.

00:02 Which of the following is not a limitations of activity based costing? so, we have four statement given here, we have to choose which is not the limitations.

00:11 So, the first is changing from, changing from a traditional direct labor based on costing system to an activity, to an activity based costing system changes product margins, changes product margin and other key performance and other key performance indicators used by managers, indicators used by managers.

01:25 So, the second statement is maintaining an activity based costing, maintaining an activity based costing system is most costly than, most costly than maintaining a traditional, maintaining a traditional labor based costing system, labor based costing system.

02:11 So, when it comes to option, third statement, in practice, so in practice most managers insist of fully allocating all the cost, fully allocating all the cost to products, products, customer and other costing object, other costing objects in activity based costing, activity based costing system.

03:13 This results in overstated cost, this result in overstated cost.

03:29 And our fourth statement is more accurate product cost may be, may result in increasing the selling price of some products.

04:02 So, these are the four statement we have, we have to find out which is not related to the limitations.

04:08 So, let us discuss the answer.

04:10 So, when it comes to the first statement, the statement is limitations of activity based on the costing when switching from a traditional direct labor costing system to an activity based costing system, product margin and other key performance indicators may change.

04:25 This can be resist by the manager as they may not want to see changes in establishing metrics.

04:31 So, when it comes to option b, this statement is a limitations of activity based costing.

04:35 The maintenance of activity based costing system can more costly than maintaining in traditional direct labor based on the costing system...

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