We are discussing and reviewing ABC costing system. It is a great method to assign costs...

We are discussing and reviewing ABC costing system. It is a great method to assign costs to overhead, activities and uses drivers. It does help to have costs and the use of resources applied to the correct activity. It there another costing method that is more efficient of cost assignment and control the use of resources, if so, what is that method?

Expert Solution

ABC Costing System is a detailed system involving allocation of cost based on specific activities. ABC helps to analyse the costs at a deeper level by determining at which cost driver the cost is higher and thus utilizing the resources at that particular activity thus reducing the costs. However, one disadvantage of ABC Costing is that the allocation of common and internal costs to the various activities becomes difficult. Also, ABC Costing is a complex method as compared to other costing systems.

The Traditional Costing System, the most commonly used costing method, is very simple to use as it involves one rate to cover all types of costs. However, it is not the best method for cost acccounting as it does not give a deeper picture of the costs involved in each activity.

Other costing systems like job costing, operating costing, batch costing, etc. are specific to the type of business and can be used in businesses where such types of activities exist. However, even they are not as efficient as ABC.

Hence, it can be said that, based on the type of business, specific costing methods can be used, however, ABC Costing is more efficient than any other costing system as it ensures better cost assignment and control over resources in a more effective manner.

ekkarill92 answered 1 year ago

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