Colorado State University Activity Based Costing Discussion

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Business Finance


Activity-based costing (ABC) is not truly a cost collection mechanism as much as it is an inventory valuation method. The main purpose for implementing an activity-based cost system is to try to overcome some of the cost distortions that occur in traditional costing from product differences when there are variations in size and complexity. However, one of the disadvantages of utilizing ABC is that the additional information gathering necessary to implement costing with that level of detail might be beyond the reach of some companies with resource or financial constraints.

With this in mind, what kinds of industries or companies do you think would benefit most from using activity-based costing and why? In designing or modifying an accounting system to capture appropriate costs for ABC, what considerations do you think would need to be made?

Your document should be 350-500 words. Please have credible references.

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Explanation & Answer


Running Head: ABC MODEL


Activity-Based Costing Approach


Activity-based costing is an approach that is used by companies to determine the
overhead or indirect costs involved in the production of products, called indirect activities. This
could include costs associated with the jobs, including salaries, as well as product/service costs

and utilities (Woodruff, 2019). In a firm, the management may assume they have the actual costs
of producing various products or services. However, without using, ABC model, the
management could be having inaccurate information.
Companies that benefit from ABC Methods
Firms that deal with the manufacture of automobiles, consumer electronics, among other
manufactured goods since ABC models applications, ensure the reliability of cost information
(Spence & Seargeant, 2015). Through product lines, ABC method can capture separate costs for
each product line meaning for instanc...

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