WK3 DQ2.docx - Activity-based costing(ABC is a methodology for more precisely allocating overhead to those items that actually use it The system can be

WK3 DQ2.docx - Activity-based costing(ABC is a methodology...

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Activity-based costing (ABC) is a methodology for more precisely allocating overhead to those items that actually use it. The system can be used for the targeted reduction of overhead costs . ABC works best in complex environments, where there are many machines and products, and tangled processes that are not easy to sort out [CITATION Bra \l 1033 ] . Conversely, it is of less use in a streamlined environment where production processes are abbreviated. Experts agree on several essential features of any successful implementation of activity based costing. First, the initiative to implement activity based costing must be strongly supported by top level managers. Second, the design and implementation of an ABC system should be the responsibility of cross functional team rather than of the accounting department. The team should include representatives from each area that will use the date provided by the ABC system.
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