Activity-based Costing (ABC)

Activity-based costing (ABC) has been embraced by a wide variety of organisations

including Citi Group, Coca-Cola, Fairchild Semiconductor, DBS Group, Tata Group and BHP

Billitons, as well as government. ABC is a costing method that is designed to provide

managers with cost information for strategic and other decisions that potentially affect

capacity and therefore fixed as well as variable costs. ABC is ordinarily used as a

supplement to, rather than as a replacement for, a companys usual costing systems.

Garrison et. al (2012)

Required:

a. Discuss major issues that are often faced by the implementers of ABC systems, from

the point of view of the number of activity and the selection of activity drivers.

b. What are the potential solutions to the issues mentioned in part (a) above?

c. From your answer in part (b) above, do you think the ABC systems will improve a

company's competitive position in the contemporary business environment? Explain.