Question

1. What do you think are some advantages for using the ABC method versus a single plant-wide rate or multiple departmental overhead rates. Why would an activity-based costing (ABC) system appeal to some companies and not all companies. Provide at least 3 examples of companies you think would and wouldn't want to use the ABC method.

Answer 1

Various factors lead to the development of ABC include:
1. Growing overhead costs because of increasingly automated production
2. Increasing market competition which necessitated more accurate product
costs.
3. Increasing product diversity to secure economies of scope & increased market share.
4. Decreasing costs of information processing because of continual
improvements and increasing application of information technology.