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Consider the following activities that take place in a veterinary clinic.
(a) Cleaning cages.
(b) Heating and air conditioning the clinic.
(c) Sending blood work to a lab.
(d) Dispensing medicine.
Which of the following statements is true?
A. Heating and air conditioning the clinic is a facility level activity.
B. Dispensing medicine is a facility level activity.
C. Cleaning cages is a facility level activity.
D. Sending blood work to a lab is a facility level activity.
E. Service entities cannot use ABC for overhead allocation.

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Answer:

E. Service entities cannot use ABC for overhead allocation.

Explanation:

ABC costing is limited to use when the cost can be directly traced to a certain activity. All of the Activities are volume driven and overheads would be incurred in small proportion to the overall cost.

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