Activity-Based Costing (ABC) Advantages and When To Use

  Assignment Help   7th Sep 2022

The activity based costing refers to the direct and indirect costs spent on activities generated within a firm or by the firm. This method keeps an account of the activities and utilities to present them in a tabular or easy to analyze formation for future activities. It is a valid question to put up here that why is ABC important. It plays a very important role in assigning and allocating the salaries, utilities as well as he cost of a particular activity for the beneficiary of the firm.

The complexity of the activity-based costing makes it very tough for students to make assignments on the same. BookMyEssay has laid down activity based accounting assignment help for students from expert professionals. Our professionals make sure to not just submit the assignment on time but also take away the learning from it that will help the student throughout his/her life.

Students find it difficult to explain the advantages of activity based costing as they perceive it as a theoretical concept rather a principle. Our expert professionals have therefore listed some of these advantages for a better and enhanced understanding.

Advantages of Activity Based Costing(ABC)

Realistic: this method of costing is extremely realistic in nature as it derives the true cost of manufactured products and thus makes it easier for the firm to calculate further income and expenditure over these products.

Allocation: it helps allocating the cost of utilities and activities that occur for the manufacturing of goods/product and lay down accurate distribution of economic resources.

Identification: the use of this method not just implies the allocation but also derives the inefficiency of certain activities. This improves the objective and encourages the firm to move towards the goal.

Determination of profit: this method does not maximize the profit of the firm rather expands the profit margin for the company by deriving the product margins much more precisely than any other technique.

Cleaning: the technique works as a sweeper by eliminating all the undesired activities or activities consuming too much cost of the firm. It also helps in creating room for improvement by making certain replacements on such activities.

These qualities performed by activity based costing helps in better understanding of profit margins as well as economic resources of the company. The better understanding helps the firm for the greater good.

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