Question

Discuss you understanding of “Activity Based Costing” (ABC)                  2 Marks

Explain two disadvantage of ABC                                                                5 Marks

Answer 1

Answer:-1)-Activity Based Costing:-This costing is an accounting methodology that assigns costs to activities rather than products or services. This enables resources & overhead costs to be more accurately assigned to products & services that consume them. Activities are classified as Unit level, Batch level, Product level, Facility level activities.

2)- The following demerits/disadvantages of Activity based costing are as follows:-

a)-More expensive & complex

b)-Selection of drivers

c)-Disadvantages to smaller firms

d)-Measurement difficulties