The Main Features and Problems Faced by Service organisations In pursuing this Technique(Banks in the UK)

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A considerable deal of literature on Activity Based Costing (ABC) typically focuses on manufacturing applications with financial institutions and health care organisations being an exception in the service sector.


More than 74% of the United States work force for example is employed on this sector (Li H. & Smith L.2001).With a dramatic fall in labour cost, the cost of processing information, overheads has become far more important in the present age of advanced manufacturing technology (AMT) with direct labour representing 5%. Thus, it therefore now appears difficult to justify the use of direct labour or direct material as the basis for absorbing overheads.ABC was developed to overcome some of the major problems of the traditional cost accounting. The 80s witnessed an influx of research in to this concept. Activity based costing involves the identification of the factors which cause the costs of an organisations major activities (Lewis; J.R., 1993). In this regard overhead are charged on the basis of their usage of factor causing the overhead.
In the UK and the US, information and manufacturing technology are widely used in both manufacturing and the service sector, with both sectors experiencing different degree of the usage (Palmer, A.2000). The four main characteristics inherent to services provide an answer to the main problem of ABC in the service industry.
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