Is ABC suitable for your company?

1410 Words Jun 17th, 2004 6 Pages
Is ABC suitable for your company?

--Using Estrin, Kantor and Albers' contingency grid,

If an organization's score puts it in Quadrant three,

Is ABC implementation recommended?

Explain. Is their method "foolproof?"


Nowadays, we know that activity based costing system assigns overhead costs to products or services products that using a two-stage process, which focuses on activities. ABC is a relatively new and very important topic in managerial accounting. ABC allows us to find a way that we could determine the profitability of every product, profitability of every customer we serve, and the profitability of our process. Contents in brief, first that comparing potential advantages of ABC versus traditional costing methods. The
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It consists of weighting and combining the weights of the ten factors and to evaluate implementing ABC. The potential benefits of ABC can be analyzed in advance along two separate dimensions. And there are ten mediating factors (Pricing Diversity, Support Diversity, Common Processes, Cost Allocation, Growth of Indirect Costs, Pricing Freedom, Fixed Expense Ratio, Strategic Considerations, Cost Reduction Effort, Analysis Frequency) can guide management in determining the answers. The fist five factors (PD, SD, CP, CA, FG) based on the probability. The second dimension of the model seeks to establish decisions. lY axis potential for ABC due to cost distortion---PD.SD.CP.CA.FG lX axis proclivity to use cost information in decision---PF.FE.SC.CR.AF To start management must analyze and responses to two key questions: 1. For a given organization, is it likely that ABC will produce costs that are significantly different from those that are generated with conventional accounting, and does it seem likely that those costs will be "better"? 2. If information that is considered "better" is generated by the system, will the new information change the dependent decisions made by the management? After finish these questions managers of company can discuses the ten factors that support or reject implementation. Finally, the combined weighted scores are plotted as a point on one of the four quadrants of a graph.Plotting the Answers--- Use Contingency Grid Method The steps in the

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