Activity-based costing (ABC) is not truly a cost collection mechanism as much as it is an inventory...

Question

Activity-based costing (ABC) is not truly a cost collection mechanism as much as it is an inventory valuation method. The main purpose for implementing an activity-based cost system is to try to overcome some of the cost distortions that occur in traditional costing from product differences when there are variations in size and complexity. However, one of the disadvantages of utilizing ABC is that the additional information gathering necessary to implement costing with that level of detail might be beyond the reach of some companies with resource or financial constraints.

With this in mind, what kinds of industries or companies do you think would benefit most from using activity-based costing and why? In designing or modifying an accounting system to capture appropriate costs for ABC, what considerations do you think would need to be made?

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Khushboo · Accepted Answer

ABC Costing analysis
In the current competitive era, ABC costing plays a vital role for determination of product cost more accurately as compared to traditional budgeting. Under ABC costing various activities are identified and based on these activities, resources are allocated to the products, market and services etc.
ABC costing is more useful for manufacturing industry because this costing helps the manufacturing industry to allocate the cost of resources on products and services in efficient and more accurate manner. It also enhances the reliability of data and provide the true costs of production. Further it also helps to classify the costs in better way during the production process.

Activity-based costing (ABC) is not truly a cost collection mechanism as much as it is an inventory valuation method. The main purpose for implementing an activity-based cost system is to try to...

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