Question - Activity-based Costing (ABC)
"Activity-based costing (ABC) has been embraced by a wide variety of organisations including Citi Group, Coca-Cola, Fairchild Semiconductor, DBS Group, Tata Group and BHP Billitons, as well as government. ABC is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore "fixed" as well as variable costs. ABC is ordinarily used as a supplement to, rather than as a replacement for, a company's usual costing systems".
Garrison et. al (2012)
Required:
a. Discuss major issues that are often faced by the implementers of ABC systems, from the point of view of the number of activity and the selection of activity drivers.
b. What are the potential solutions to the issues mentioned in part (a) above?
c. From your answer in part (b) above, do you think the ABC systems will improve a company's competitive position in the contemporary business environment? Explain.