{"id":209850,"date":"2025-04-29T12:55:41","date_gmt":"2025-04-29T12:55:41","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=209850"},"modified":"2025-04-29T12:55:42","modified_gmt":"2025-04-29T12:55:42","slug":"which-of-the-following-is-a-limitation-of-activity-based-costing","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/04\/29\/which-of-the-following-is-a-limitation-of-activity-based-costing\/","title":{"rendered":"Which of the following is a limitation of activity-based costing"},"content":{"rendered":"\n

Which of the following is a limitation of activity-based costing?<\/p>\n\n\n\n

a. More cost pools
b. Less control over overhead costs
c. Poorer management decisions
d. Some arbitrary allocations continue
which one is correct and why?<\/p>\n\n\n\n

The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n

The correct answer is: d. Some arbitrary allocations continue<\/strong><\/p>\n\n\n\n

\n\n\n\n

Explanation:<\/strong><\/p>\n\n\n\n

Activity-Based Costing (ABC) is a more sophisticated method of allocating overhead costs compared to traditional costing systems. It attempts to allocate costs more accurately by identifying activities that consume resources and assigning costs based on actual usage. While ABC offers significant advantages, such as more precise product costing and improved cost control, it still has some limitations. One important limitation is that some arbitrary allocations continue<\/strong>.<\/p>\n\n\n\n

Even though ABC uses multiple cost drivers to allocate overhead more precisely, not all overhead costs can be directly traced to activities. Some costs, like facility rent or senior management salaries, are inherently difficult to assign to specific activities or products. As a result, companies still have to allocate these types of overhead costs arbitrarily, based on broad measures like square footage or headcount. These allocations are not truly activity-driven and can introduce inaccuracies in product costing.<\/p>\n\n\n\n

Other options provided in the question are incorrect:<\/p>\n\n\n\n