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Sir,
The answers given for test questions 2 and 5 of Activity Based Costing don’t seem right. Why aren’t both statements true in question 2 and why is the second statement true in question 5?You are correct with regard to question 2 – sorry, it was mistyped and I will have it corrected.
With regard to question 5, the answer is correct.
Using ABC does cost more – it take time (and therefore costs money) to identify the cost centres and to identify the drivers. It could turn out the the unit costs using ABC were not much different that those using tradition absorption (because, for example, most of the overheads were labour related, or because the overheads in total are very small compared to the costs of materials etc.). In that case the benefits would be small and could be lower than the costs.
(Note that the question does not say the costs will be greater than the benefits – usually it will not be the case – but that they may be greater than the benefits).
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