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Hi John!
Could you explain why the following statement about ABC is not correct?
ABC can only used to analyse the past, not to make decisions about the future.
1. My understanding is that ABC helps us to determine an accurate cost per unit. However, (make decisions about the future) I presume that relevant costs should be more applicable for decision in the future. ABC on it’s own act as a guide for costing but may be useful for making a decision. (Therefore the statement is correct)
The statement is correct.
What has happened in the past has happened, and using ABC will not change what has already happened!
Using ABC helps get more accurate costs and therefore better selling prices in the future. Just as importantly (if not more so) it helps identify where overheads are being incurred which can help reduce overheads in the future.
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