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What are the limitations of activity-based costing?

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What are the limitations of activity-based costing?

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Main limitations of ABC are:-

ABC requires management to estimate costs of activity pools and to identify and measure cost drivers for these pools,

Detailed ABC systems are costly to operate and difficult to understand. Many companies are discouraged from using ABC due to the higher cost of identifying multiple activities and applying numerous cost drivers. ABC is more complex than traditional costing system. Also we need a team of dedicated people to develop and implement an ABC system, along with regular consultation with, and ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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