In olden days business operations were simple and the various costs associated with operational activities, whether direct or indirect, were less in amount as well as in number. Today there is a gamut of costs related to manufacturing and other operational activities. Manufacturing of multi products and multi process business operations have forced the managers to adopt new costing techniques as an improved substitute of traditional costing. Earlier, overheads were unidentifiable or not so clearly allocable. There are situations where traditional costing is insufficient to find answers to the questions posed by various business circumstances. There is justified need for espousing sophisticated methods of cost allocation. Various changes in the business environment in entirety, making the segregation and allocation of cost an intricate task, have given way to the advent of ABC.
ABC
as the name signifies is a system of costing based on activities
involved in transformation process. ABC is the process of
simplifying and clarifying decisions required to be made by
the management using activity costs. It analyzes the cost
and the benefits of various operational and business activities.
ABC is being developed to replace the TCS, as ABC is proving
superior to TCS. It may not be necessary that all products
or customers are profitable. It emphasizes on identification
of cost objects, drivers, pools and centers in the process
of creating and delivering the products or services. It helps
in analyzing economic performance through focused attention
on the cost pertaining to activities. |
