Question

ABC costing is beneficial when: (list all that apply)

A. There is intense competition

B. There is a wide variety of products

C. There is a large amount of overhead

D. It provides little difference from traditional costing methods

Answer 1

Ans. Activity based costing is an accounting methodology that assigns cost to activities rather than products or services.

A.There is intense competition:- When the entities are facing intenese competition then there is urgent requirement to compute cost accurately and wisely as per the current market situation,ABC is always help in controlling cost it help to identified the non value added activities.

B There is a wide variety of products:- ABC is most favourable when there is diversity in the and the multiple product where we have to identify the best value addition product.

C.There is a large amount of overhead:- ABC costing is very much useful when production overheads are high and substantial part of Cost of Production, as compare with tradional costiung method ABC is very effective.

D.It provides little difference from traditional costing methods:-No ABC costing  make drastic change as compare to traditional costing few differences are given below how ABC is very much differ from Traditional accounting.
.

traditional Costing	ABC Costing
i) In traditional costing overheads are related with cost centers/Departments	In ABC Costing Overheads are related with activities.
ii) Cost are related with departments and cost center so cost measurement are not realistic.	Cost are related with activities are more realistic and give more clear picture about the cost.