Multiple Choice
Which of the following costs is NOT included in the calculation of Cost of Goods Sold (COGS) under both the perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following is NOT a good reason for a paint manufacturer to use activity-based costing (ABC)?
A
ABC is less expensive and simpler to implement than traditional costing systems.
B
ABC provides more accurate product costing by allocating overhead based on actual activities.
C
ABC helps identify inefficient processes and areas for cost reduction.
D
ABC can improve pricing decisions by providing better cost information.
Verified step by step guidance1
Understand the concept of Activity-Based Costing (ABC): ABC is a costing method that allocates overhead costs based on actual activities rather than arbitrary measures like direct labor hours or machine hours. It provides more accurate cost information and helps businesses make informed decisions.
Analyze the benefits of ABC: ABC is known for improving product costing accuracy, identifying inefficiencies, aiding in cost reduction, and enhancing pricing decisions. These are all valid reasons for using ABC.
Evaluate the statement 'ABC is less expensive and simpler to implement than traditional costing systems': This statement is incorrect because ABC is generally more complex and costly to implement compared to traditional costing systems. It requires detailed tracking of activities and resources, which can be time-consuming and resource-intensive.
Compare the incorrect statement with the other options: The other options highlight valid advantages of ABC, such as better cost allocation, process improvement, and enhanced pricing decisions. These align with the purpose of ABC and justify its use.
Conclude that the incorrect statement is the one claiming ABC is less expensive and simpler to implement, as this contradicts the reality of ABC's complexity and implementation costs.
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