Disadvantages of Activity Based Costing (ABC)

Though, ABC is considered the best option to improve performance throughout the organisation. But this is not always possible. Following are the main Disadvantages/ drawbacks of Activity Based Costing (ABC):

1. The cost of conducting ABC may be greater than the benefits obtained,

2. The overheads might be very small part of the total cost of the product, so in this case applying ABC system is just a waste of time and efforts,

3. The implementation cost might be too high which may render the project unfeasible,

4. The staff may get involved on unnecessary things and the focus on production and marketing might get lost.

5. It is not specifically required by accounting standards. Standards require the absorption of the appropriate amount of overheads into the products which traditional absorption costing system fulfils appropriately.