Advantages Of Activity-Based Costing(ABC):
1. Product cost determination under activity-based costing is more accurate and reliable because it focuses on the cause and effect linkage of costs and activities in the context of producing goods.
2. Fixation of selling price for multi-products under activity-based costing is fair and correct because overheads are allocated on the basis of relevant cost drivers.
3. Control of overheads consisting of fixed and variable becomes possible by controlling and monitoring activities. Linkage between cost and activities are clearly identified in activity-based costing and thus provides opportunities to control overhead costs.
4. Sufficient information can be obtained to make decisions about the profitability of different product lines.
5. Fair allocation of overheads occupy a considerable portion in the total cost components.
Disadvantages Or Limitations Of Activity-Based Costing(ABC)
1. Difficult to identify the overall activities that influence costs.
2. Not easy to select the most suitable cost drive.
3. Difficult to evaluate cost on the basis of activities.
4. Not suitable for small manufacturing concerns.
1. Product cost determination under activity-based costing is more accurate and reliable because it focuses on the cause and effect linkage of costs and activities in the context of producing goods.
2. Fixation of selling price for multi-products under activity-based costing is fair and correct because overheads are allocated on the basis of relevant cost drivers.
3. Control of overheads consisting of fixed and variable becomes possible by controlling and monitoring activities. Linkage between cost and activities are clearly identified in activity-based costing and thus provides opportunities to control overhead costs.
4. Sufficient information can be obtained to make decisions about the profitability of different product lines.
5. Fair allocation of overheads occupy a considerable portion in the total cost components.
Disadvantages Or Limitations Of Activity-Based Costing(ABC)
1. Difficult to identify the overall activities that influence costs.
2. Not easy to select the most suitable cost drive.
3. Difficult to evaluate cost on the basis of activities.
4. Not suitable for small manufacturing concerns.
.jpg)