Advanced The basic ideas justifying the use of Activity Based Costing (ABC) and Activity Based Budgeting (ABB) are well publicised, and the number of applications has increased. However, there are apparently still significant problems in changing from existing systems.

Requirements:

(a) Explain which characteristics of an organisa¬ tion, such as its structure, product range, or environment, may make the use of activity based techniques particularly useful. (5 marks)

(b) Explain the problems that may cause an organisation to decide not to use, or to aban¬ don use of, activity based techniques.

(8 marks)

(c) Some categorisations of cost drivers provide hierarchical models:

(i) unit-level activities,

(ii) batch activities,

(iii) product sustaining activities,

(iv) facility sustaining activities.

Other analyses focus on ‘value adding’ and ‘non-value adding’ activities.

Requirement:

Explain what is meant by ‘non-value adding activ¬ ities’, and discuss the usefulness of this form of analysis.