Internet Research Scavenger Hunt:
1. What year was Activity Based Costing first introduced? Who are the “founders” of Activity-Based Costing?
2. Briefly, discuss the main advantages of ABC. (Why is it considered to be superior to the plantwide rate method?)
3. Discuss the main disadvantages of ABC.
1. Activity based costing was first introduced in 1987.
and the founder of activity based costing is ROBERT S.KAPLAN AND W.BRUNS
2. ADVANTAGES OF ACTIVITY BASED COSTING
* Accurate product cost : ABC costing helps to provide accurate cost of every product because the cost of every product is determined based on the activities which are calculated using ABC costing.
* Information about cost behaviour : ABC helps to identify the real nature of cost behaviour which helps to reduce cost and then identifies activities that do not add value to that product.
* Tracing activities for the cost object : ABC uses various cost drivers for different activities and it is also concerned within and beyond the cost to trace more overheads of the products.
* Better decision making : ABC costing helps to improve the decision quality by proving the accurate cost of the products. it also helps in fixing the selling price of the product.
3. DISADVANTAGES OF ACTIVITY BASED COSTING
* ABC costing is expensive and complex because it has various cost drivers and hence it becomes more complex than traditional costing
* There are various cost drivers and it is very difficult to select one cost driver to allocate the cost to that product.
* ABC has many levels of utility for different organisations but it does not provide utilities to small firms. because the level of technology ans cost is not effordable by small firms.