Costing and ABC Flashcards
Which of the following statements about activity based costing is true?
A. The cost driver for quality inspection is likely to be batch size.
B. The cost driver for materials handling and despatch costs is likely to be the number of orders handled.
C. In the short run, all the overhead costs for an activity vary with the amount of the cost driver for the activity
D. A cost driver is an activity based cost.
B
The cost driver for quality inspection is likely to be batch size’ is incorrect. The cost driver for quality inspection costs is likely to be either the number of units produced or the number of batches produced, depending on whether quality inspection is linked to batches produced or total production output. The batch size is not a factor that drives total inspection costs.
In the short run, all the overhead costs for an activity vary with the amount of the cost driver for the activity’ is incorrect. Some costs of activities may vary with the volume of the activity, but other costs of the activity will be fixed costs. ‘ A cost driver is an activity based cost’ is incorrect. A cost driver is not the cost itself; it is a measure of the volume or quantity of an activity.
