Advanced A company is proposing the introduction of an activity-based costing (ABC) system as a basis for much of its management accounting information.

(a) Briefly describe how ABC is different from a traditional absorption approach to costing and explain why it was developed. (8 marks)

(b) Discuss the advantages and limitations of this ‘approach based on activities’ for manage¬ ment accounting information in the context of:

(i) preparing plans and budgets

(ii) monitoring and controlling operations

(iii) decision-making, for example, product deletion decisions. (12 marks)

(Total 20 marks)

ACCA Paper 8 Managerial Finance