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ABC Cost Allocation and Fixed Costs

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Some firms have a lot of fixed costs and few variable costs, while other firms are configured the other way around. What effect do you think the existence of a high proportion of fixed costs has on the desirability of using ABC methods?

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The solution discusses the effect the existence of a high proportion of fixed costs has on the desirability of using ABC methods in 271 words.

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Activity based costing (ABC) was developed to provide more accurate product costs. Variable Costs (Direct Materials and Direct Labor costs) can be directly traced to products so there is no uncertainty in assigning these costs to the products. The problem arises in allocating Fixed Costs (manufacturing overheads) to the products. This problem is due to the fact that the manufacturing overhead cannot be conveniently and economically ...

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