Which of the following is a characteristic of ABC?
1. improved financial reporting
2. aid to managers in determining product cost
3. used in place of job or process costing
4. use restricted to manufacturing entities
To determine which of the following options is a characteristic of ABC (Activity-Based Costing), we can go through each option and assess whether it aligns with the characteristics of ABC.
1. Improved financial reporting: This is indeed a characteristic of ABC. ABC provides more accurate and detailed information about the costs of various activities, allowing for improved financial reporting.
2. Aid to managers in determining product cost: This is also a characteristic of ABC. ABC allocates costs based on the activities that drive them, providing more accurate product cost information to managers.
3. Used in place of job or process costing: This is not a characteristic of ABC. ABC can be used alongside job or process costing, but it is not a direct replacement for them. ABC provides a more refined method of cost allocation, particularly for overhead costs.
4. Use restricted to manufacturing entities: This is not entirely accurate. While ABC was initially introduced in manufacturing industries, it has also been applied successfully in service industries. So, the use of ABC is not restricted to manufacturing entities.
Based on this assessment, options 1 and 2 are characteristics of ABC. Options 3 and 4 do not align with the characteristics of ABC.