Disadvantages of Activity Based Costing
Activity based costing system help managers manage overhead and understand profitability of products and customers and therefore is a powerful tool for decision making. However activity based costing has a number of limitations or disadvantages.
These limitations or disadvantages are briefly discussed below:Implementing an ABC system is a major project that requires substantial resources. Once implemented an activity based costing system is costly to maintain. Data concerning numerous activity measures must be collected , checked, and entered into the system. ABC produces numbers such as product margins, that are odds with the numbers produced by traditional costing systems. But managers are accustomed to using traditional costing systems to run theirs operations and traditional costing systems are often used in performance evaluations.