Advantages And Disadvantages Of ABC Model

The activity-based cost model (ABC) is kind of method that calculate company’s cost by allocate different activities and verify each cost pools of company. In recent years, ABC model has be used largely by many organisations, some managers believe that ABC model can bring more benefit rather than traditional cost and provide better support for managing organisation. However, some people doubt that ABC model also has limitation and cost to company, and it may not suitable for all types of organisation.

1.1 The benefit of ABC model

According to Swenson (1995), activity-based cost model has been accepted by more and more manufacture organisation and they provide many positive feedback about ABC model. In change of satisfaction, almost all respondents

According to research by Tom Kennedy (2001), some stock performance of ABC firms is not manifest itself immediately, but take a period of time. This may because compare with other method, the implementation of ABC model is complex and time consuming. Compare with other non-ABC firms, the stock performance of ABC firm is weak, so not every firms will accept ABC model as the cost method for their company. For cost pools of ABC models, even company can create an initial model, the update of cost pools also could cause Misinterpretation of Data and it will bring extra cost of costing management, it’s also possible that some activity-based costs may be irrelevant in certain decision-making scenarios, in the end the ABC models are often not maintained and their cost estimates soon become obsolete. For those company that implement ABC model, they also have to concern that employees rarely devote 100% time on producing and manufacturing, ABC model may fail to account these parts just by activities and is may lead to cost leaks. In conclusion, not every company are suitable for ABC model, and even ABC firms also can be impacted my ABC model and cause extra costs (Velmurugan,