Merits of ABC

1. ABC brings accuracy and reliability in product cost determination by focusing on cause and effect relationship in the cost incurrence 2. ABC provides more realistic product cost. 3. ABC is concerned with all activities within and beyond the factory to trace more overheads to the products. 4. ABC traces costs to areas of managerial responsibility, processes, customers, departments, besides the product costs. 5. ABC improves greatly the manager s decision making as they can use more reliable product cost data. 6. ABC produces reliable and correct product cost data in case of greater diversity among the products manufactured such as low volume products, high volume products. 7. ABC provides cost driver rates and information on transaction volumes which are very useful to management and performance appraisal of responsibility centers. Cost driver rates can be used advantageously for design of new products or existing products as they indicate overhead costs that are likely to be applied in costing the product.

Demerits of ABC
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ABC has numerous cost pools and multiple cost drivers and therefore can be more complex than traditional costing. Some difficulties emerge in implementation of ABC system, such as selection of cost drivers, assignment of common costs varying cost driver rates etc. ABC has difficult levels of utility for different organization such as large manufacturing firm can use it more usefully than the smaller firms. It can prove costly to manage ABC system

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