Question

Time-Driven Activity-Based Costing (ABC)" Please respond to the following: Analyze the major benefits and major weaknesses of traditional Activity-Based Costing (ABC) in determining accurate overhead costs over a time-driven ABC system. Provide a rationale for your response. Suggest the manner in which a business can achieve a competitive advantage in the marketplace through the use of ABC. Provide two (2) reasons to convince senior management that they should implement an ABC system.

Answer 1

=>> The basic reason of the problem with Activity Based Costing system is the way in which traditional ABC models are developed.

->> Benefits: ABC allows for teamwork and relationships to flourish as accounts work to solve the cost of goods, items and rights. Instead of using separate computers, phones, and other expensivetechnology, using one or two computers and phones will greatly reduce cost and the saved cash can be used to increase employee's pay. Lastly, ABC takes time to show the cost of certain activities and its relation to every transaction. For example, we determine the weekly cost of shipping, or the monthly cost of storing another company's item.

->> weekness:- The major weakness of ABC costing is expensive implementation. Setting up an ABC system can be expensive and time-consuming. Especially for the business activities analyzing, the process can use up valuable resources as data are collected, measured and entered into the new system. And when the processes and resource spending changed or new activities are added, ABC model also has been difficult for companies to implement because of the high costs.

-->> which a business can achieve a competitive advantage in the market place through the use of ABC and two (2) reasons to convince seniormanagement that they should implement an ABC system are :-

• First, ABC system allows us to determine the margins of various products, productlines, and entire subsidiaries. Which could be very useful to identify where to positioncompany resources to earn the largest margins.

• Second, because ABC system is designed to track the cost of activities, so wecan use it to see if activity costs are in line with industry standards. If not, ABC is anexcellent feedback tool for measuring the ongoing cost of specific services asmanagement focuses on cost reduction.

Conculsion :- So before adopt ABC approach, companies must ask, is the cost of implementation greater than the benefit of greater accuracy?