Question

what is the major disadvantage of Activity Based Costing

Answer 1

As we know that Activity Based Costing have various advantages but this costing system also have some major disadvantages;

1. Activity based costing is not useful for small organization because this system is very complex and time consuming.

2. In case of low amount of overheads or no overheads costs, use of Activity Based Costing is useless.

3. In case of single product or low number of products produced by a firm, Activity Based Costing will not be good option.

4. Monthly profit statements can not be prepared using Activity Based Costing method. That is why this is also a major disadvantage of this method.

5. Activity Based Costing method is higher expensive thus it will create extra financial burden on the firms & companies.

6. Activity Based Costing method is very complex and time consuming hence it will not be beneficial for some firms and companies.

7. Activity Based Costing method requires very higher qunatum of resources apart from this resources collected under this method can be misused.

8. Report generated with the help of Activity Based Costing method is not fully accepted as per GAAPs etc.