Question

Research a company that uses activity based costing. Write a paragraph or two on why this company decided to use activity based costing. How has ABC changed the company's profitability ?

Answer 1

Activity Based Voting is an accounting methodology that assigns posts to activities rather than products or services. This ena bes resources & overhead costs to be more accurately assigned to products & services that consume them.

ABC changed the company's profitability in the following ways:

1. It reports on the resource spending

2. Since the costs ahe assigned to activities, therefore, when a product is finally made, the research costs are accurately assigned to the respective products proportionately. Hence, showing ensuring fair distribution of costs to each product.

3. Due to the proportionate allocation of research costs to the products, it is ensured that there are no errors in the product costing. Thus, all the products are fairly priced.