Activity-Based Costing System – Coca-Cola

Activity-Based Costing System – Coca-Cola

Coca-Cola is one company that currently uses activity-based costing (ABC) system. According to Smyth (2019), the company uses activity-based costing to determine its price points. Differences are identified when comparing the ABC system with the traditional costing system. Traditional costing systems normally allocate costs to products using volume-based measures such as machine and direct labor hours. It is assumed in the traditional costing system that resources are consumed in proportion to the production volume. On the other hand, the ABC system considers that not all products similarly consume resources because they vary in cost intensity. Thus, it allocates costs based on activities to achieve a more accurate and comprehensive understanding of product costs. As a result, the ABC system is advantageous in enhancing company decision-making, better cost control, more accurate cost control, and enhanced resource allocation. ABC costing is also disadvantageous; it is time-consuming and costly implementation. Further, the system is complex to design and apply within an organization.

References

Smyth, D. (2019). What types of businesses do activity-based costing? Bizfluent. https://bizfluent.com/info-12105073-types-businesses-activitybased-costing.html

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Use the Internet to identify one manufacturing company that currently uses an activity-based costing (ABC) system.
How does an ABC system compare to a traditional costing system?
What are the advantages and disadvantages?