Share
Explore BrainMass

Activity based costing- limitations & its application

What are the limitations of activity-based costing?

Under what conditions is ABC generally the superior overhead costing system?

Solution Preview

What are the limitations of activity-based costing?

Under what conditions is ABC generally the superior overhead costing system?

Meaning:

Activity-Based Costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to products and services according to the actual consumption by each in order to arrive at the actual cost of products and services.

In Activity-Based costing, costs of all organization's resources are assigned to the products and services that the organization manufactures/renders. The main intention behind the assignment of resource cost to the products/services is to find out the cost of the product and the resultant profitability.

Limitations of ABC costing

? ABC involves high cost of identifying multiple activities and applying numerous cost drivers. Also we need a team of dedicated people to develop and implement an ABC system, along with regular consultation with, and ...

Solution Summary

The answer contains the meaning and limitations of Activity based costing and also the conditions under which it is superior to overhead costing system.

$2.19