Which of the following is a limitation of activitybased cost

Which of the following is a limitation of activity-based costing?

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?

Solution

The major limitation of ABC costing is that it doesn\'t distinguish between fixed and variable costing and allocate all the indirect costs on per unit basis. However costs such as depreciation or supervisory salary doesnot increase with increase in the level of production.

Thus in ABC costing arbitrary allocation of some costs still continue.

Therefore option (d) is correct.