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Sir, I think this practice question no five of ABC needs a review, because there are no good reasons, “how can ABC lead to reduction in total overheads” option three. And option two is incomprehensible, which is considered correct option according by opentuition.
It does not need a review – it is a question from a previous real exam and is perfectly acceptable.
The main reason for the use of ABC in real life is that it can lead to a reduction in total overheads. It forces the business to determine what is causing the overheads which can result in more efficient working. It would seem that you did not watch the free lectures before attempting the test because I explain this in the lectures.
Option two is not incomprehensible at all. It is a statement of fact that it is not normally possible in practice for all overheads to be related to specific activities and it is therefore normally impossible in practice to apply ABC principles to all the overheads. It cannot therefore be regarded as an advantage of ABC if it is not possible to apply ABC principles to every overhead.
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