Question

Surveys show that approximately 30% of companies actually use ABC. At the same time, a world-wide survey of almost 350 companies showed that 87% of respondents said that their ideal costing system would include some form of ABC. What are some of the reasons that explain why so many companies say that ideally they would use ABC, but haven’t yet adopted it?

Answer 1

Not suitable for smaller businesses- Firms who use market based prices may not prefer ABC as they are not reliant on detailed product costs for setting pricing, thus they may view the ABC process as needlessly time consuming for their purposes.

Time involved- The ABC method is relatively time consuming. Activities like selection of cost drivers, assignment of common costs, setting cost driver rates consume time and need to be updated on a frequent basis.

Expensive to implement- There need to be accurate measurement systems in place for ABC to be effective, and man hours to implement ABC are also high due to recurring activities like assignment and allocation of cost.