Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › ABC – Criticisms
- This topic has 5 replies, 2 voices, and was last updated 8 years ago by John Moffat.
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- October 12, 2015 at 11:21 am #275992
i was going through the ABC chapter in the bpp text, and came across the following criticisms which i couldnt understand, please explain them properly sir :
1. Cost apportionment may still be required at the cost pooling stage for shared items of cost such as rent, rates and building depreciation. Apportionment can be an arbitrary way of sharing costs.
2. A single cost driver may not explain the cost behaviour of all items in a cost pool. An activity may have two or more cost drivers.
3. Unless costs are ‘driven’ by an activity that is measurable in quantitative terms, cost drivers cannot be used. What drives the cost of the annual external audit, for example?
4. There must be a reason for using a system of ABC. ABC must provide meaningful product costs or extra information that management will use. If management is not going to use ABC information for any practical purpose, a traditional absorption costing system would be simpler to operate and just as good.
5. The cost of implementing and maintaining an ABC system can exceed the benefits of ‘improved accuracy’ in product costs.
6. Implementing ABC is often problematic, due to problems with understanding activities and their costs.
7. ABC is an absorption costing system. Absorption costing has only limited value for management accounting purposes.
October 12, 2015 at 11:25 am #276006All of these are dealt with in the free lectures on ABC.
I am sorry but I cannot type out the whole lecture here 🙂October 12, 2015 at 2:21 pm #276026i went through the lecture on adv. and disadv. of ABC there are only 2 adv and 2 disadv….thats very little, what if the examiner asks for 5 or 6 adv and disadv?
Also, looking at points 1, 3, 4 , 5 and 7…i dnt think it is covered in the lecture
October 12, 2015 at 5:24 pm #276057The examiner will not – look at past exams if you do not believe me!!!
I do cover point 1 in the lecture – I specifically say that it may be difficult to decide how to apportion some costs between different cost pools.
I don’t cover 3, but even so it should make sense – if you are not able to measure the effect of a cost driver then you are not able to use ABC on that overhead.
I do mention 4, that there is only any point in using ABC if the costs involved in implementing it are less than the benefit that results.
Point 5 is effectively the same as point 4 🙂
Point 7 is dealt with in other lectures and is anyway revision of Paper F2.
October 12, 2015 at 10:56 pm #276082thank you sir for your response.
sorry but i dint get what you meant by saying that “the examiner will not look at past exams….”
October 13, 2015 at 6:21 am #276124No – there was a ‘dash’ in between 🙂
What I meant was, the examiner will not ask for 5 or 6 advantages or disadvantages 🙂
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