Question

Implementation of ABC costing in a company that has been using a plant-wide overhead rate would typically be expected to result in all of the following except:

More accurate product costing

Elimination of traditional cost accounting systems used for financial reporting purposes

Increased profitability from the elimination or reduction of unprofitable products or services

Greater insight into the production activities that add value to the company's products.

Answer 1

The correct answer is

Elimination of traditional cost accounting systems used for financial reporting purposes

Activity based costing divides overhead costs into different cost pools and uses different drivers to trace costs to products

It is a better method of cost allocation compared to plant-wide rate which uses a single rate to allocate overhead costs

It results in more accurate costing, increased profitability by eliminating unprofitable segments and greater insight into value added activities

However, the system used for reporting purposes is not affected by it

as it is a method of decision making used for internal purposes