Learning Objectives

1 explain the problems associated with conventional costing systems, resulting from a failure to adapt to the changing business environment;

2 recognise common indicators of an outdated product costing system;

3 describe both the costing view and the activity-management view of the activity-based costing (ABC) model;

4 evaluate the costs and benefits associated with some of the different approaches to activity-based costing, which include different subsets of costs;

5 use the activity-based model to measure the costs of activities, and assign activity costs to products;

6 explain the differences between product costs prepared under activitybased costing and those prepared under conventional costing systems;

7 recognise what types of organisations can gain the greatest benefits from activity-based costing;

8 identify the impediments to implementing activity-based costing;

9 outline various design issues to be considered when implementing activity-based costing, including budgeted versus actual costs, implementation of activity-based costing as a ‘project’ and the inclusion of other cost objects;

10 explain the implications of spare capacity for estimating the cost of activities;

11 appreciate the importance of ‘behavioural issues’ in implementing activity-based costing;

12 identify the limitations of activity-based costing in providing accurate product costs;

13 describe the difficulties of implementing activity-based costing in service organisations; and

14 after studying the appendix, use a relatively simple version of activitybased costing to allocate overhead costs to products.