Why would an activity-based costing (ABC) system appeal to some companies, and what is the criterion...

Why would an activity-based costing (ABC) system appeal to some companies, and what is the criterion for utilizing an ABC system?

Describe the advantages for using the ABC method versus a single plantwide rate or multiple departmental overhead rates; and specify any limitations that exist when using these conventional type overhead rates?

Expert Solution

1. An activity based cositng system allocates overhead to products based on the activity usage done to manufacture the products. An organization which has a large overhead cost and wants an accurate overhead rate so that pricing decisions can be taken correctly would find activity based costing appealing.

To utilize the activity based costing system, the activities used to manufacture the products and the cost incurred for each activity must be distinguishable. This data is used to derive activity rates .

2. The advantages of using the ABC method versus the traditional method are mentioned below:

- The product cost using ABC is more accurate.

- The real nature of the cost object is identified.

- Activity bsed costing helps in better decision making.

The conventional type overhead rate is a blanket overhead rate which might result in over / underapplication of overehad for certain products. This will affect the pricing of the product.

ekkarill92 answered 1 year ago

1. Why would an activity-based costing (ABC) system appeal to some companies, and what is the...

1. Why would an activity-based costing (ABC) system appeal to some companies, and what is the criterion for utilizing an ABC system? 2. Describe the advantages for using the ABC method versus a single plantwide rate or multiple departmental overhead rates; and specify any limitations that exist when using these conventional type overhead rates?

- Activity-Based Costing Define activity-based costing (ABC) systems. What benefits does implementing an ABC system bring...

- Activity-Based Costing Define activity-based costing (ABC) systems. What benefits does implementing an ABC system bring to the company? Explain at least two benefits. What are the disadvantages to implementing an ABC system? List and explain at least two. Would the proposed changes make ABC a universally applicable costing method in your opinion? Why or why not? Elaborate your response. No plagiarised answer, please.

Some would argue, utilizing activity-based costing (ABC) can be an advantage for the company, is that...

Some would argue, utilizing activity-based costing (ABC) can be an advantage for the company, is that true and could you explain?

What is a job-order costing system? What do you know about Activity-Based-Costing (ABC) system? What are...

What is a job-order costing system? What do you know about Activity-Based-Costing (ABC) system? What are the differences between an ABC system and a traditional costing system? Use an example to show how we calculate and allocate overhead costs in an ABC system and a traditional system.

What is the difference between Activity-Based Costing(ABC) and Traditional Costing?

ABC Company uses a traditional costing system. Management is considering switching to an activity-based costing system....

ABC Company uses a traditional costing system. Management is considering switching to an activity-based costing system. What steps must Star take in initiating an activity-based costing system? Need unique answer

Define activity-based costing (ABC) systems. What benefits does implementing an ABC system bring to a company?...

Define activity-based costing (ABC) systems. What benefits does implementing an ABC system bring to a company? Explain at least two benefits. What are the disadvantages of implementing an ABC system? List and explain at least two. Would the proposed changes make ABC a universally applicable costing method in your opinion? Why or why not? Elaborate your response.

When switching from a traditional costing system to an activity based costing system that contains some...

When switching from a traditional costing system to an activity based costing system that contains some batch-level costs the unit product costs of high volume products typically decrease and the unit product costs of low volume products typically increase the unit product costs of both high and low volume products typically decrease the unit product costs of both high and low volume products typically increase the unit product costs of high volume products typically ncrease and the unit product costs...

Explain activity-based costing. Choose two (2) manufacturing companies and explain why these companies would benefit from...

Explain activity-based costing. Choose two (2) manufacturing companies and explain why these companies would benefit from using an activity based costing system.

Companies usually, in pursuit of refining their costing system, adopt Activity-Based Costing systems with an aim...

Companies usually, in pursuit of refining their costing system, adopt Activity-Based Costing systems with an aim to arrive at accurate cost figures. Describe, in your own words, the prominent factors/reasons (any four) that contribute to these companies’ taking such initiatives. That is, what are the main factors that are causing these companies to consider refining their costing systems?

Question