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agreed with Mr. Kamran Anjum
The limitations of ABC costing system:
1- ABC Costing System is very costly to implement and maintain
2- ABC costing systems produces the reports that are different from the profit and loss reports produced through traditional costing systems.
3- As most of the companies are using traditional costing systems, so because of the difference in the costing basis the costing and financial reports of the two companies of the same industry could not be compared
4- Adaptability of ABC Costing System is not suitable for all kind of companies because small companies have not many resources to adapt it and have too many activities but size of transactions is too low.
5- Data Produced through ABC Costing System can easily misinterpret and can lead towards wrong decisions
6- ABC costing system does not comply with the GAAP and a company has to produce its reports for internal and external purposes by using traditional and ABC costing system both at a time.
7- ABC costing system costs are allocated on the base of cost drivers and activities undertaken to manufacture the product, definitely, it provides the accurate and proper allocation of the costs to the products but there is a danger of over or under costing of the products when irrelevant cost drivers or activities are assigned to the products
Disadvantages Or Limitations Of Activity-Based Costing(ABC):
1) Difficult to identify the overall activities that influence costs.
2) Not easy to select the most suitable cost drive.
3) Difficult to evaluate cost on the basis of activities.
4) Not suitable for small manufacturing concerns.
