Limitations of an activity-based costing system include which of the following?
a. Control of overhead costs is enhanced.
b. Activity-based costing systems are less reliable.
c. The expense of obtaining cost data is relatively high.
d. It eliminates arbitrary assignment of overhead costs.
Answer:C
Choice "c" is correct. Activity based costs anticipates increased cost pools and increased allocation bases. The determination of the amounts that go in these pools and their related cost drivers will likely be more costly than traditional systems. Increased costs of ABC represent a limitation of the system.
Choice "a" is incorrect. Improved control over overhead costs is a benefit, not a limitation of activity based costing
Choice "b" is incorrect. Activity based costing systems tend to produce more accurate and more reliable information that traditional cost allocation systems.
Choice "d" is incorrect. Activity based costing attempts to trace costs to activities that consume resources and thereby eliminate the arbitrary assignment of overhead costs. The enhanced traceability of costs is a benefit and not a limitation of ABC.