If you were a small business owner would you implement an activity-based costing system. What potential benefits or pitfalls do you foresee?

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If you were a small business owner would you implement an activity-based costing system. What potential benefits or pitfalls do you foresee?
Answered Same DayDec 20, 2021

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Robert answered on Dec 20 2021
3 Votes
Before applying the concept of Activity based costing let us first discuss its advantaged and
disadvantages. Activity based costing helps in the identification of the activities, organization
and assignment of the cost to each of the individual activities according to the actual
consumption of each. Activity based costing means if a product does not consume any activity
then, that product should not abso
any part of the overhead of that activity, if a product
consume high activity, that product should abso
high portion of the overhead of that activity.
In the activity based costing we prepare the statement of cost pool and the statement of total cost.
The key elements of activity based costing refer to the cost drivers which are allocated on the
overheads. The various types of cost drivers are number of set up, number of requisition, number
of delivery, number of orders, etc. and the overheads are set up cost, inspection, stores(material
handling charges), packing charges, design/engineering etc. are the types of overheads on which
these cost drivers are allocated.
The traditional costing focuses on full costing approach i.e. adding variable cost as well as fixed
cost to...
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