Question

explain the implications of activity based costing to the prganization ?

Answer 1

Activity based costing is a method of allocating costs to the product or services on the basis of their usage of the activties.

This is done by finding out all the activities involved and then allocate them to products and services. We can say that Activity based costing helps to allocate the indirect costs in a way that it becomes direct cost..

1. Activity based costing helps in accurate costing hence it leads to accurate pricing .

2. We can say that activity based costing helps in improving the overall value of organization as customers feels that they pay correct value for products/services.

3.As now we know that activity based costing first identifies all the activities , hence if there are any activities which are non value adding then the organization can eliminate or improve such activities.