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Activity-based costing systems should be adopted when ________.

Activity-based costing systems should be adopted when ________.

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Answer #1

Solution:-

ABC System Should be adopted

  • ABC is useful is a management decision making tool.
  • Where there is great diversity in a product range.
  • Overheads that is indirect cost are high in the relation to the direct cost.
  • Product uses different amount of resources in each department
  • Consumption of resources is not primarily driven by volume based drivers. Ex- No. of direct labours,direct machine hours.
  • In case of cost overflow, ABC can help in reduction cost control.
  • Companies who wish to determine price based on cost plus markup basis find ABC methods very relevant and are able to determine competitive prices for the product.
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