In a practical context, there are frequently difficulties in identifying the appropriate drivers.ĪBC costs are based on assumptions and simplifications. While ABC is likely to provide better information for decision makers, it must still be applied with care.ĪBC is not fully understood by many managers and therefore is not fully accepted as a means of cost control. In general terms, an organisation which has little competition, a stable and standardised product range and for which overheads represent a small proportion of total cost, will not benefit from the introduction of ABC. The need to analyse costs on a radically different basis will require resources, which will lead to additional costs.Ĭlearly the benefits which will be obtained must exceed these costs.
There are four major issues to be considered:
