Discuss the usefulness/suitability of Activity Based Costing.

ABC is particularly needed by organisations for product costing in the following situations: 1. High amount of overhead: When production overheads are high and form significant costs, ABC is more useful than traditional costing system. 2. Wide range of products: ABC is most suitable, when, there is diversity in the product range or there are multiple products. 3. Presence of non-volume related activities: When non-volume related activities e.g. material handling, inspection set-up, are present significantly and traditional system cannot be applied, ABC is a superior and better option. ABC will identify non-value-adding activities in the production process that might be a suitable focus for attention or elimination. 4. Stiff competition: When the organisation is facing stiff competition and there is an urgent requirement to compute cost accurately and to fix the selling price according to the market situation, ABC is very useful. ABC can also facilitate in reducing cost by identifying non-value-adding activities in the production process that might be a suitable focus for attention or elimination.