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For which one of the following costs might the number of production runs be a cost driver?
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Materials ordering costs
Production set-up costs
Materials handling and despatch costs
Product development costs
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The drivers should link costs to activities. Production set up costs will most likely increase as the
number of set ups increases, so this is a suitable cost driver.

The correct answer is: Production set-up costs
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The following statements have been made about activity based costing:
Statement 1 ABC can only be used within a manufacturing environment
Statement 2 ABC assumes that most overhead costs are incurred at the product level
Which of the above statements is/are true?
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Neither 1 nor 2
ABC can be used for manufacturing and service businesses. Traditional absorption costing assumes
that most overhead costs are incurred at the product level. ABC considers more of the overheads
relate to batch and product sustaining activities.
The correct answer is: Neither statement 1 nor statement 2 is true
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Fill in the blank.
Activity-based costing (ABC) sees overhead costs as __________________________________.
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In the activity-based costing approach, a factor that causes costs is known as:

a cost activator
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The correct answer is: a cost driver