Indicated how activity-based costing (ABC) was great in theory, but that one-size-fits-all overhead cost allocations were more relevant. They indicated that ABC pilot programs were highly successful in major corporations, such as Chrysler and Safety-Kleen. Their ABC numbers revealed that the actual costs of some low-volume parts were as much as 30 times the stated costs using older cost manufacturing overhead allocation methods. However, 30 years later, the ABC adoption rate was only 19% of all organizations. Additionally, 94% of the respondents who rejected ABC said they were happy with their current cost systems.

Respond to the following in: If ABC is so much more accurate than the one-size-fits-all allocation methods, as shown by early adopters, why do you think so many organizations have decided not to use it? How might an inaccurate manufacturing overhead costing system affect your work or decisions in a manufacturing environment?

In most instances, organizations are price takers. That is, the market sets the price of a product or service, and the organization determines if it can compete in the market given their costs. By using traditional overhead costing systems, what errors might an organization be making when it comes to deciding to compete or not compete in a given market?

Provide at least 2 errors to consider.