It can equally be applied in service sectors like banks, insurance, hospitals and other institutions providing services.
Online manager-net. ABC system can change the system of evaluation of new process technologies, to reduce setup times, rationalization of plant layout in order to reduce or lower material handling cost, improve quality etc. Apart from their narrow concern over efficiency and optimal profitability, the advocates of activity based approach have not attempted to explain why firms insist on using simple methods of allocation of overheads.
We are determined not only to make great drinks, but also to contribute to communities around the world through our Business Plan on Coca-Cola Ltd.
We cannot reduce the direct cost of the product, unless materials of cheaper value are used but we can control very much the overheads.
ABC provides accurate cost information to evaluate the performance of the transferor and transferee departments. The activity-based costing method.
Related Articles:. Improvements in Performance: ABC involves preparing the statement of expenditure activity-wise and comparing it with the corresponding value addition to know the activities which are to be eliminated or need improvement for better performance of the organisation.
However, even if it appears that existing product costs are misleading, it may not always be necessary to incorporate ABC into the accounting system.
Therefore, it becomes necessary to have a costing system based on activity done. For example auditors