There are several limitations to ABC.
Firstly it is expense to implement and maintain, both in time and money.
It still faces issue allocating some overheads to activities, for example supervisor salaries.
Management and employees can be resistant to the data it provides as it can make their performance look poor. They may even provide poor quality source data if they feel threatened.
The concepts of ABC were first introduced within the manufacturing sector in U.S. during the 1970s to 1980s. It has been later refined and improved upon over the years. For example, a machine manufactures two products. Assuming that the production volume of the two products is the same, using traditional costing methods, the cost of using the machine will be factored by two and assigned to the two products. However this might not be correct as one product might require more processing time in the machine than the other. Traditional costing methods always assume a relation between overhead and the production volume. It always fails to take into account the size or complexity of the product. In reality, it is not safe to assume that the manufacture volume of the finalized product is directly proportionate to the product cost as not all overheads vary with the number of units produced. With traditional costing methods, there is always a danger of one product subsiding another. Over the past century, as firms have grown larger than before, there is a real need for an accurate cost management methodology. ABC soon gained widespread use as traditional costing methods always used a percentage to calculate the indirect costs into direct costs. However as indirect costs rise, the margin of error becomes greater and thus makes the calculation vastly inaccurate. Instead, ABC focuses on indirect costs and traces rather than allocating each expense to the particular cost thus making an indirect cost direct. ABC stands out by breaking down the costs into a very detailed level. This information will give management a very clear picture of which processes come with high costs but little value and how to improve the process or to eliminate the process entirely. With such information, management will be in a better position to make strategic and better informed business decisions. ABC stands out from traditional costing methods especially when: - overhead is high, - products are complex - Cost of error is high - Competition is stiff
Activity-based costing is a form of cost refinement, designed to obtain greater accuracy than traditional allocations in cost assignments for product costing and decision-making purposes.
Facts and Fiction
Answering "Problem relating to the implementation of activity based costing and activity based management system
Activity Based Costing as per Inventory Management.
cosa si intende per integrazione dei sistemi contabili?
Activity Based Costing(ABC) Is a more recent approach to product costing ,pioneered by Professor Kaplan and Cooper . ABC is an attempt to reflect more accuratly in product costs those activities wich influence the level of support overheads includes such items as Inspection, Dispatch, Production Planing , Set up, tooling and similar costs. ABC system uses many drivers as absorption bases. Because of this , it claims that the use of ABC and several cost driver rates produces more realistic product or service cost specialy when the support costs are high.
Advantages of Activity Based Costing System:Activity based costing system has the following main advantages / benefits: More accurate costing of products/services, customers, SKUs, distribution channels.Better understanding overhead.Easier to understand for everyone.Unit cost rather than just total cost.Enables costing of processes, supply chains, and value streams
Standard costing is an easy way to assign costs to products. With an easy approach, organizations can create and plan budgets easier.
Job Order Costing Operation Costing Normal Costing Actual Costing Standard Costing Kaizen Costing Target Cost
Variable costing is called marginal costing while direct costing is separate concept.
The benefits of a pre paid cell phone are that you never go over what you plan on paying for and you are current on how much your phone is costing you. The are many disadvantages too though.
a job costing
outline the characteristics and purpose of: Job costing and process costing
Labour costing. Material costing
Yes marginal costing is also sometimes called direct costing.
full absorption costing
what is the purpose of process costing?
Methods of Costing The cost of products or services is determined using several methods. The use of a given method is dictated by such factors as: the nature of cost units, the production process, the mode of cost accumulation, the duration of work etc. The following are the well established methods of costing a. Job / Batch costing b. Contract costing c. Process costing d. Service costing Techniques of Costing Irrespective of the type of costing method being applied there are various approaches that could be adopted. These are:  Full Absorption costing  Marginal costing  standard costing using  absorption costing  marginal costing