Question

Which of the following statements about cost drivers in ABC systems is FALSE? 1. cost driver for a cost pool should have a cause and effect relationship to the costs in the pool 2. the cost drivers should be duration drivers 3. 100% correlation between the cost driver activity and the variation in the cost is not necessary 4. the cost driver activities can be quantified

Answer 1

Answer:

2. the cost drivers should be duration drivers

Explanation:

There are two types of cost drivers, transaction drivers and duration drivers:

• transaction drivers are calculated by determining how many times did an activity occur, e.g. how many machine setups were carried out.
• duration drivers are calculated based on the time it takes for an activity to occur, e.g. how many machine hours were sued to produce certain product.