Page 27 - P1 Integrated Workbook STUDENT 2018
P. 27
Activity based costing
Problems with traditional costing
1.1 Changes to production costs
Activity based costing is particularly useful in organisations where overheads become
the most significant cost (and become more important than labour and material
costs). This will be very true of most service businesses but it will also apply to many
manufacturing companies as they switch away from labour intensive production.
Manufacturers are changing the way that they produce and using more machinery
and computers, and less labour. This has a profound impact on the nature of their
production costs.
Increased complexity of operation.
Increased percentage of overhead costs.
Reduced significance of labour.
Less volume related costs.
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