Activity Based Costing (3) Flashcards
When should ABC be used (production overheads)
When production overheads are high relative to prime costs
When should ABC be used (diversity)
When there is a whole diversity of product range
When should ABC be used (differences in use)
When there are considerable differences in use of resources by products
When should ABC be used (consumption of resources)
Where consumption of resources is not driven by volume
Benefits of ABC (cost control)
Cost control and reduction by efficient management of cost drivers
Benefits of ABC (better costing)
Better costing information used to assist pricing decisions
Benefits of ABC (re-analysis)
Re-analysis of production and output/product mix decisions
Benefits of ABC (profitability)
Profitability analysis
Benefits of ABC (realistic estimate)
A more realistic estimate of costs and profits which can be used in performance appraisal
Disadvantage of ABC (time consuming)
It is time consuming and expensive
Disadvantage of ABC (volume related)
Limited benefit if overhead costs are primarily volume related
Disadvantage of ABC (one product)
Benefit is reduced if company is producing only one product or a range of products with similar costs
Disadvantage of ABC (multiple drivers)
Complex situations may have multiple cost drivers
Disadvantage of ABC (arbitrary)
Some arbitrary apportionment may still exist
