Abc Case Strength and Weakness

Strength:

1: One of major advantages of using ABC is that it avoids or minimizes misrepresentations in product costing that result from random allocations of indirect costs. At first, Anderson and her team hard to trace the cost of the actives, lost of available data was no useful for management decision. ABC system could assist managers in identifying the value added activities which they could further improve to meet customers’ demands and process simplification and efficiency. So they listed about 35 primary activities, and based on these cost drivers, they identify the indirect and support cost linked with these primary activities.

2: Identifies Wasteful Products and save cost

ABC can be helped to identify non-valued added activities and better allocate resources to profitable and efficient activities, unlike in the traditional costing system where one or two fixed predetermined overhead rates are used to allocate all indirect costs, the indirect cost can be properly allocated under the ABC. The use of ABC can also add value to the continuous improvement of business processes. The team found that the city workers all liked having extra vehicles as the precaution, and they used the different equipment to do the same works. When they used the ABC model to see what their annual supplies budget, how many take-home vehicles had been allocated to the workers, what the costs for rent and maintenance of these facilities, and about the unproductive time, the outcomes was amazing. They can use the resources productively. The method also helps to fix the price of products or services that are excessive or incorrect. Overall product and service quality can improve as ABC’s data details production and cost issues that need to be resolved. In this case, ABC streamlined the management cost. For instance, the team claimed that there was no need 20 people to support a supervisor, this distribution was unreasonable and costly. As the improvement in machine utilization,...