Question
The modernization of manufacturing activities makes the traditional approach to costing obsolete. There are so many reasons why ABC is preferred to traditional cost apportioning
The modernization of manufacturing activities makes the traditional approach to costing obsolete. There are so many reasons why ABC is preferred to traditional cost apportioning methods. As I alluded to in an earlier response, the application of ABC in modern business is mostly due to the problems associated with the traditional methods of cost apportionment using direct labor cost and overhead cost. Changes in technology and market conditions are also factors that give rise to ABC. Average direct labor cost has been drastically reduced in recent times. This reduction has made absorption rate that is labor related to be meaningless (Haladu, 2016). On the other hand, overhead cost has been growing due to service support like scheduling, production control, data processing and so on (Adeniji, 2004). This increase has had serious impact on the magnitude of overhead and has changed the nature of most overhead costs.
The production process has drastically changed in recent times, depending heavily on the use of modern technology (computers). This coupled with short product life cycle and higher standards demanded by customers have resulted in increased overhead costs. Finally, there is the need to stay above competitors in the modern market. Traditional methods of apportionment give higher overhead to products. ABC makes a more realistic overhead allocation thus reducing the total product cost.
Question
Can a company use ABC as a factor in enhancing its strategic objectives?
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Yes a company can use ActivityBased Costing ABC as a factor in enhancing its strategic objectives ABC provides a more accurate and detailed understand...Get Instant Access to Expert-Tailored Solutions
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