Answer
our signs that indicate when ABC systems are likely to provide the most benefits are:
Limited Cost Pool Diversity: When significant indirect costs are allocated using only a few cost pools, ABC can offer more precise cost allocation by breaking down costs into finer categories.
Uniform Indirect Costs: If most indirect costs are labeled as output unit-level costs and other cost categories (e.g., batch-level, product-sustaining, facility-sustaining) are ignored, ABC can help capture the full range of cost drivers and allocate costs more accurately.
Diverse Resource Demands: When products vary significantly in their demands on resources due to differences in volume, process steps, batch size, or complexity, ABC can provide insights into the true cost structure of each product.
Profit Discrepancies: If products the company is well-suited to make show small profits, while less suitable products show large profits, ABC can help uncover hidden cost drivers and reveal the true profitability of products.
Work Step by Step
our signs that indicate when ABC systems are likely to provide the most benefits are:
Limited Cost Pool Diversity: When significant indirect costs are allocated using only a few cost pools, ABC can offer more precise cost allocation by breaking down costs into finer categories.
Uniform Indirect Costs: If most indirect costs are labeled as output unit-level costs and other cost categories (e.g., batch-level, product-sustaining, facility-sustaining) are ignored, ABC can help capture the full range of cost drivers and allocate costs more accurately.
Diverse Resource Demands: When products vary significantly in their demands on resources due to differences in volume, process steps, batch size, or complexity, ABC can provide insights into the true cost structure of each product.
Profit Discrepancies: If products the company is well-suited to make show small profits, while less suitable products show large profits, ABC can help uncover hidden cost drivers and reveal the true profitability of products.
