Question

What determines when and/or if a company would benefit from using Activity Based Costing?

Answer 1

So your question is more diected towards suitability of
when to use ABC for product costing
refer to the situations below
a)This method is most useful when ther is a assortments in the
product range or there are multiple products
b)When the production overheads are quite large and form the
most significant part of unit costs
c)ABC costing separates the cost according to volume of activities
what the traditional system could not do was to differ what are
value added activities what are not like machine setup , material handling,etc
so this gets eliminated in ABC
so if non value added activites are signiicant under traditional costing
system , entities shoul shift to ABC
d)In this age of globalisation, there is stiff competition in the market
it is for this very purpose the entities need to price their products
accurately with the market conditions
As explained above ABC will reduce cost by elimiating non
value added activiites in the pricing process and help to
focus on suitable attention or elimination of any production
process