Management Accounting - Essay Example

This affects the costs and consequently affects the profits. Therefore, the company should use ABC costing method in order to obtain the correct overhead costs for products XYI, YZT and ABW. This is because ABC takes into account more than one cost driver into account. It is more accurate since it assigns costs to products and traces all activities and assigns them to products by using multiple cost drivers. ABC (activity based costing) is the costing method that is currently trending in the world.

It has received credit for correcting deficiencies that existed in the traditional system. It is seen as the best costing method available for managers that operate various departments since they are able to assign costs to their products more accurately. However, ABC has received a lot of criticism due to its failures experienced in large operations. Managers of these large firms have termed it difficult to implement and maintain. Activity based costing does not offer the managers with accurate and timely information for decision-making.

Activity based cost systems that are used in large-operational firms have proved to provide managers with out-of-date and inaccurate information. This is due to the huge amount of data to be collected. In addition, there is delay in the data to be collected. For instance, in a larger firm, it will require about 110 departments to submit their reports periodically. This makes the process time-consuming since it will take time for the system to calculate the costs for its numerous activities. The time-consuming process has resulted to the companies doing away with the ABC or ceasing to update their systems.

This leads to out-of-date and inaccurate information provided to the managers by the ABC systems (Kaplan and Anderson, 2014). Universally, ABC has received resistance. This is evidenced by the annual survey carried out that ranked ABC position 2 after median. This has led to some companies abandoning ABC or failing to adopt