10 Myths on Activity Based Costing

26 November 2006 |

Dear Management Accountants,

Activity Based Costing has not became popular in India to what ever extent it deserve. There are so many Myths as far as this concept is concerned. This concept is developed to ascertain the accurate process cost data on activities and products and can be used for accurate product cost data, cost & OH control , identification and elimination of non- value added activities etc.,.

But in practice, in India, Its adoption is very limited and heared several comments Against its use and the most common are listed below.

  • ABC systems are too difficult to implements and use:
  • ABC systems are too costly; and
  • ABC systems are too complex to understand
  • Improving our existing system will do the job:
  • All that we need are more cost centers;
  • Machine-hour systems save the time; and
  • A cost system should be kept simple.
  • We do not need more accurate product costs:
  • We know what our products cost; and
  • The market sets prices, so we do not need product costs.
  • Cost systems play a limited role:
  • We cannot do anything about fixed costs;
  • Only manufacturing costs are product costs; and
  • Product costs are not useful for managing overhead activities.

Now I request the members to examine , discuss and share their views on each and every comment on ABC given above as to whether they are correct or are only myths. Let us have very clear views on this topic since this is a very important tool for Management Accountants.

Having clear views on this topic will help us in Answering & Convincing the World about its utility in case if we intend to Practice in this field.

(Let all of us take this as a Group discussion or a project etc., and start discussing)



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