- This topic has 1 reply, 2 voices, and was last updated 6 years ago by
.
- Posts
Implementation of ABC is cost effective when when variable production costs are a low proportion of total production costs while overhead costs costs ( assumed to be fixed costs) are a large proportion
can someone please explain this?
under traditional or abc, we just allocate the costs on certain types of activities right?
so how is using abc more effective in certain cases?
i thought abc is more meaningfuABC does lead to better decision making (because it absorbs the fixed overheads in a more meaningful way) and therefore can lead to cost savings.
However ABC does require a lot more work in practice and therefore is expensive.
It is worth spending the money if the benefits are more than the cost, but if fixed overheads are small then it is not going to make much difference to the costings, and therefore any benefits will be small. Variable costs being low means that fixed costs will be high, and therefore ABC is more likely to be cost effective.
- You must be logged in to reply to this topic.