Activity-Based Cost Assignment System

The purpose of management accounting is to provide useful and relevant information to the management to help them to make informed superb decisions. However, the operational and financial information provided is often useless and in many cases ignored by the internal users.

When Activity-Based Costing (“ABC”) was first developed in the late 1980s, it was expected to replace the traditional costing methodology (Standard & Absorption Costing) devised 70, 80 years ago, and to offer valuable cost information associating production activities and the products. The theory behind ABC was both elegant and attractive.

However, in practice, ABC became very complex and difficult to implement, and it was too costly to maintain. Another disadvantage of ABC was that engineered data were often difficult to reconcile with financial systems.