Question

Activity-based costing (ABC) is said to result in improved costing accuracy when compared with traditional costing procedures. Briefly explain how this improved accuracy is attained.

Answer 1

Activity-based costing systems are greater correct than conventional costing structures. this is because they provide an extra specific breakdown of indirect prices.

Activity-based totally costing offers a greater correct approach to product/carrier costing, main to more accurate pricing decisions. It increases expertise of overheads and price drivers; and makes highly-priced and non-cost including sports greater visible, permitting managers to lessen or dispose of them.

There are pros and cons to both the traditional and the Activity-based costing gadgets. One gain of the ABC gadget is that it provides extra correct records on the charges to manufacture products, but it does not show up on the monetary statements.

The primary purpose of the usage of the activity-primarily based costing method is to increase the profitability and standard performance of a corporation. The Activity-based costing approach does this by identifying correct overhead fees and cost drivers main to extra streamlined enterprise procedures.

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