ABC costing

Question 1

Limitations

Answer 1

1) if overhead costs are the primary costs or just a small part of the overall costs
2) It is difficult to identify the overall activities influencing costs
3) Complex situations might have multiple cost drivers
4) It is difficult to identify the suitable cost driver
5) Not suitable for small manufacturing businesses
5) Lower benefit of the company is just producing one product or several products with similar costs
6) It is time consuming

Question 2

Definition

Answer 2

Activity based management is used to describe the cost applictaion process of the activity based costing.
- ABM views business as a linked activities that ultimatly add value to the customer
-According to ABM every activity consumes costs, so by managing activities all costs will me managed in the long run.
-Managing activites require understandig of what causes the activites to be performed and what causes the cost of the activities to change.

Question 3

Goal of abm

Answer 3

-is to satisfy consumer demand while making a lower demand on business resources, which would contribute to cost reduction
-ABM also provides information on various business activites, costs of the activities and also why the activitie sare undertaken and how well they are performed