19A1 - Cost Accounting - Activity Based Costing

Which of the following characteristics would be an indicator that a company would benefit from switching to activity-based costing?

• Only one homogeneous product is produced on a continuous basis

• Overhead costs are high and increasing with no apparent reason

• The costs of implementing activity-based costing outweigh the benefits

• The existing cost system is reliable and predictable

Activity-based costing is most likely to yield benefits for companies with all of the following characteristics, except:

• accessible accounting and information systems expertise to maintain the system

• numerous products that consume different amounts of resources

• a highly competitive environment, where cost control is critical

• operations that remain fairly consistent

Factories producing a more varied and complex mix of products have higher costs than factories producing only a narrow range of products because:

• more variations and complexities require more activities

• they require more engineers

• they buy more robotics

• they require more direct laborers

(a)   refines a costing system by identifying individual activities as the fundamental cost objects.

For activity-based cost systems, (a)   are assigned to products in the proportion of the demand they place on activity resources.