Week 2, DQ1 - Low and high costs can be easily identified...

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Week 2, DQ1 What are the advantages and disadvantages of an Activity Based Costing (ABC) system? How is the “cost driver” important in this type of costing system? Give an example of a cost driver in your job or an activity at home. ABC is an accounting process or methodology that, instead of assigning cost to products or services, the cost is assigned to activities based on their usage of resources. The ABC method allows for associated costs and resources to be attributed to the services and products being used. ABC is not about eliminating costs, but rather providing detailed information as to how costs are consumed. With the ABC method, all of the activities which are part of a process are easier to be costed. Advantages of ABC: Accurate costing of all activities can be obtained throughout the company.
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Unformatted text preview: Low and high costs can be easily identified and where they are being incurred. ABC is a valuable tool and an aid in process improvement. Costs of individual activities are assessed, on the basis of resource usage. Can be an aid in determining pricing. Disadvantages of ABC: Can be difficult to implement, especially if the company is using traditional accounting methods. Costing all activities is time consuming and expensive. Too much detail can be provided, thus making it difficult to see the bigger picture. Any activity or event that results in costs being incurred is referred to as a cost driver. In the organization which I work for, the process of filling nail enamel bottles with the various enamel colors is a cost driver....
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This note was uploaded on 10/10/2010 for the course ACC ACC 349 taught by Professor Costaccting during the Spring '10 term at DeVry Irvine.

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