The current thinking in Management Accounting contends that Activity- Based Costing (ABC) provides better information concerning products costs and decision making than traditional management accounting techniques.
However, whereas ABC may give a different impression of product costs, it is not necessarily a good idea and it may be advisable to continue improving traditional cost accounting techniques before moving to ABC.
Required:
(i) Explain cost behavior issues underlying the use of ABC.
(6 marks)
(ii) Explain why ABC might, be more suitable for modern manufacturing environment than traditional cost accounting techniques.
(4 marks)
(iii) Comment on the reported claim that ABC gives better information as a guide to decision making than the traditional product costing techniques.
(5 marks)