ACTIVITY BASED COSTING Chapter 5 Ostrosky ABC is generally used as a supplement to, rather than as a replacement for, the company’s usual costing system. Most organizations that use ABC have two costing systems—the official costing system that is used for preparing external financial reports and the ABC costing system that is used for internal decision making and for managing activities. ABC has a focus on activities as the fundamental cost object. Companies most likely to benefit from ABC have some of the following characteristics: ** high OH costs in relation to total product cost. ** wide diversity of operating activities; wide diversity of products. ** volume diversity between products/services. ** improved computer technology. ** many changes in activities over time, but few corresponding changes in the accounting system. ** operating personnel have little faith in the accuracy of existing cost information. ABC is a contemporary cost accounting system.
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