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  Limitations of Activity Based Costing

Introduction to Limitations of Activity Based Costing

However this system is quite effective, it suffers from a number of limitations. These limitations are as follow:

Ø Activity Based Costing is a complex system and needs lot of tedious and records calculations.

Ø For small organizations, traditional cost accounting system might be more useful than Activity Based Costing because of the simplicity of operation of the former.

Ø Sometimes it is hard to attribute costs to single activities like some costs support various activities.

Ø There is a requirement of trained professionals who are limited in number.

Ø If there is a total support from the top management this system will be successful.

Ø Considerable investment of time and money is needed for the implementation of this system.

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