Answer to Question #159979 in Management for Prince

Question #159979

Subject : Business Performance Measurement

1.Bring out in detail the significance of activity based costing in enhancing corporate performance? (please give at least 10 points for significance)

2."Activities and cost drivers of activity based costing is difficult to determine." Discuss? (please answer in 200 to 250 words)

Expert's answer

Activity based costing plays a critical role in improving organizational performance as it happens in managerial accounting activity based costing provides critical information that helps in improving organizational processes, managing costs, adding value and managing organizational sources. Activity based costing enable the organization to assign indirect costs and overheads to products and services. With the help of activity costing, the organization to understand the costs and revenues earned from each product. Through such information, the organization for focus on investing products with high revenues and low costs such that they can increase the profits. Additionally, the organization will understand weak products and services that need more attention or training on the side of the employees to understand how to introduce changes and improve such products.

Activity cost drivers are the costs that cause an increase or a decrease in the costs of production and offering services. The activities and cost drivers of activity-based costs cannot be easily determined. Activity based costing is about assigning the cost and overheads incurred in every product or service offered in the organization. The activities and cost drivers of activity costing cannot be easily determined as there is no direct costs that can be attributed to it in the process of offering services.

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