Why ABC costing may differ from conventional costing?

For a given organization, is it likely that ABC will produce costs that are significantly different from those that are generated with conventional accounting, and does it seem likely that those costs will be “better”? The factors involved here include:

• the number and diversity of products or services produced,
• the diversity and differential degree of support services used for different products,
• the extent to which common processes are used,
• the effectiveness of current cost allocation methods,
• and the rate of growth of period costs.

If information that is considered “better” is generated by ABC, will the new information change the dependent decisions made by the management? The factors involved here are:

• management’s freedom to set prices,
• the ratio of period costs to total costs,
• strategic considerations,
• the climate and culture of cost reduction in the company,
• and the frequency of analysis that is desirable or necessary.