Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

Yes a company can use ActivityBased Costing ABC as a factor in enhancing its strategic objectives ABC provides a more accurate and detailed understand... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Cost Accounting

Authors: William Lanen, Shannon Anderson, Michael Maher

3rd Edition

9780078025525, 9780077517359, 77517350, 978-0077398194

More Books

Students also viewed these Accounting questions