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15.4 'ABC is still at a relatively early stage of its development and its implications for process control may in the final analysis be more
15.4 'ABC is still at a relatively early stage of its development and its implications for process control may in the final analysis be more im- portant than its product costing implications. It is a good time for every organisation to consider whether or not ABC is appropriate to its par- ticular circumstances. J Innes & F Mitchell, Activity Based Costing, A Review with Case Studies, CIMA, 1990. You are required: (a) to contrast the feature of organisations which would benefit from ABC with those which would not; (8 marks) (b) to explain in what ways ABC may be used to manage costs, and the limitations of these approaches; (11 marks) (c) to explain and to discuss the use of target costing to control product costs. (6 marks) (Total 25 marks) 15.5 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)
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