In a service company, a large percentage of overhead costs are company-wide costs. Why does this...

In a service company, a large percentage of overhead costs are company-wide costs. Why does this present a unique challenge for an ABC implementation in a service company, as compared to a manufacturing company?

Expert Solution

Service companies are basically concerned with the services they provide to their customers. It is very different from the product manufacturing companies as service providing companies do not physically sell goods rather they provide their services.
Example : accounting firm. An accounting firm prepares and maintenance the accounting data of their customers, so basically they are providing their services not selling goods.

In service companies, the company-wide costs are related to their administrative department as service providing companies do not manufacture any product so their main company-wide costs are related to this department.
Now implementation of ABC in a service company as compared to manufacturing company presents a unique challenge. This is because ABC costing is activity based costing and in-service providing company activities cannot be measured easily.
Also in ABC costing the activities in an organisation are to be identified first and then according to their consumption the costs are allocated.

ekkarill92 answered 2 years ago

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In a service company, a large percentage of overhead costs are company-wide costs. Why does this...

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