Advantages And Disadvantages Of An Activity Based Costing System
First we will talk about activity based costing and we will start by giving the definition of it ; Activity based costing means refining the costing system by concentrating on individual activities as essential or primary cost object or tool . ABC system has a lot of benefits and we will discuss them now, ABC helps in understanding overhead much better and the percentage of prim cost and overhead is the same in both ABC and traditional system; but what gives advantage of ABC over traditional is by using ABC system it helps to know the detail of overhead so that it can identifies how is the activity to avoid. One of the benefits of using ABC system is product and price mix decisions; one of the most powerful …show more content…
ABC system enable firms to know and identify if there any surplus in the capacity and also if there any lack in the capacity. We can add that one of the advantages of this system is that it provides us with a guide to evaluate the performance of the firm by comparing results with each other; in addition companies can transform unprofitable customers into profitable one by convincing them to use more of company's products; it also helps in understanding the quantity required by each activity of every product and this knowledge allow companies to be more accurate by determining the cost of product. ABC system promote the use of ABM with the firm or company and ABM refers to any action the manager take; by using this system it enables firm to develop the efficiency of their activities and the profitability of their
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