Question

Which of the following statements about Activity-Based Costing (ABC) are true?

1. ABC is LESS useful for an organisation where a very large proportion of its indirect cost are unit-level costs compared to an organisation where a very small proportion of its indirect cost are unit-level costs

2. ABC can be used to allocate a company's support departments' costs to its operating departments

3. ABC can be used by companies better understand the cost it incurs to produce its products but is not useful in helping governments better understand the cost it incurs to provide services to its citizens.

Group of answer choices

Statement 1 only

Statement 2 only

Statement 3 only

Statement 1 and 2 only

Statement 1 and 3 only

Answer 1

Ans.=

Activity Based Costing (ABC) is used to allocate a company's service department cost to it's operating department. It is useful for any organisation engaged in providing services to customers, including government incurring cost to provide services to its' citizens. Also,ABC is more useful for organisations's having large proportion of indirect cost as unit level cost.

Hence,

Option (B),i.e., Statement 2 only is the correct answer.

=> I would be glad to receive a feedback or suggestion to the question answered above.

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