Product costing system

Research evidence shows that the use of ABC in service industries appears to be more widespread than in manufacturing industries.

Identify and discuss the possible reasons for ABC’s relative popularity in service industries.

 

Activity based costing (ABC) is a costing system that was developed in the 1980s as a result of an increasing awareness in businesses of the deficiencies of traditional approaches to production overhead absorption.

Required:

i) Describe the principal deficiencies in the traditional product costing system which ABC seeks to correct.

ii) Describe the key features of ABC.

iii) Identify and comment upon a significant advantage and a significant disadvantage associated with the typical implementation of an ABC system.

Solution: