Benefits Or Advantages Of Activity-Based Costing (ABC)
Main benefits or advantages of activity based costing can be studied as follows:
1. It Is Scientific System
Activity based costing is scientific and modern method of costing which is developed to overcome the weakness of other methods of traditional costing.
2. It Is Suitable For Large Firms
Activity based costing system is very suitable for large manufacturing concerns with large volume of production and adopting modern technology.
3. Accurate Cost Determination
Activity based costing helps to determine accurate product cost by showing relationship between different activities and costs.
4. Fixation Of Price
Activity based costing helps to fix fair selling price of the product by determining accurate cost of production per unit.
5. Quality Decision Making
Activity based costing helps the management to make decisions, future planning and forecasting by providing information and quantifiable figures.
Drawbacks Or Disadvantages Of Activity-Based Costing (ABC)
Main drawbacks or disadvantages of activity based costing system can be studied as follows:
1. Not Suitable For Small Firms
Activity based costing is suitable only for large manufacturing concerns. It is not applicable for small firms with limited volume of production.
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2. Complex System
Activity based costing is a complex system which needs substantial resources to collect information and data. It is time consuming and expensive to implement.
3. Difficult To Allocate Cost
It is very difficult to identify the activities, determine the cost and allocate the cost to each activities.
