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In: Accounting

Activity based costing is clearly a superior system to conventional product costing techniques. Hence, all organisations...

Activity based costing is clearly a superior system to conventional product costing techniques. Hence, all organisations should adopt activity based costing’. Do you agree? Explain!

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Expert Solution

I do not agree with the above statement that all organisations should adopt Activity Based Costing.

It is true that Activity Based System is superior to Conventional Product System, but it should also be noted that Activity Based Costing is more Costlier than Conventional Costing. Activity Based Costing is more time consuming. It requires more expertise knowledge. It is also to be considered that some overheads are not divisible on per product usage basis. It is more complex to calculate, hence it is difficult for small business concerns to account as Activity Based Costing System. Hence, I suggest that for Big Concerns where there are proper Accounting Systems are there, concerns which can spend on Proper Accounting they should opt for Activity Based Costing but for Small Business Conventional Costing System can be opted as small organisations would not spend more on accounting and also they cannot give more time for Accounting.

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ekkarill92 answered 2 years ago
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