ABC application was used in the construction industry, comparing three types of rebar used for...

Question

ABC application was used in the construction industry, comparing three types of rebar used for specific construction projects. It was shown that the company had undercosted two of the types of rebar, while the third type of rebar was overcosted. With this example in mind, consider the following issues.

Why is the ABC described in the reading this week, unacceptable for external financial reports?

In what fundamental ways does ABC differ from traditional costing methods?

Why are top management support and cross-functional involvement crucial when attempting to implement an ABC system?

David · Accepted Answer

Question 1 
The reasons for non-usage of ABC in case of external users are as follows. 
 The details included in the external reports are not as extensive as internal reports 
since internal reports tend to include the product costs of individual products. 
 The changing of the accounting system in place is difficult to accomplish considering 
the time and other resources which have been spent on the same. 
 The external reports are expected to comply with GAAP and other applicable 
regulations which is not fulfilled by ABC.

ABC application was used in the construction industry, comparing three types of rebar used for specific construction projects. It was shown that the company had undercosted two of the types of rebar,...

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