Discussion Post: Activity-Based Costing
To begin in your initial post, define what is meant by an Activity-Based Costing (ABC) system as opposed to a plantwide overhead rate used to apply overhead costs. List and explain at least two benefits and two drawbacks in implementing ABC. Focusing on the advantages, what benefits might implementation of an ABC system bring to a company? Is an ABC methodology applicable only in manufacturing businesses or can it be used by any type of enterprise? Explain.
Then, read the article, Rethinking Activity-Based Costing (Kaplan, 2005), and reflect on the proposed changes to ABC as a potentially more universally applicable costing method, summarizing your thoughts.
For your responses, focus on the following questions: Do you agree with your classmates' responses concerning their definition, benefits, and drawbacks of an ABC system? Explain. Would you suggest a different type of business that could use ABC methods to improve the rate(s) at which overhead costs are applied? Elaborate your response. Focusing on your classmates' responses to the article reviewed; offer your thoughts for or against the proposed changes to ABC.