Question

Explain the conditions under which ABC (Activity Based Costing) is likely to operate

Answer 1

following are the conditions under which ABC can be applied or is likely to operate:-

1. relatively high production cost:- ABC is most suitable when there is high production cost rather than traditional costing system.for instance:-production cost in automobile industry

2.wide range of products:- ABC is most suitable where there is multiple product line or diversity in products.

stiff competition- ABC is most suitable in stiff competition market.it gives accurate allocation of overhead on the basis of cost driver.