Advantages of activity based costing

1) It helps understanding the behavior of overhead costs and their relations ship to products services customers and market segments.

2) It helps to allocate the resource to those activates that will increase shareholders value.

3) It links profitability analysis to operational decisions.

4) It ensures that the cost of non-value added activities is visible to management.

5) It provides the right information for performances measurement because it focuses on activities rather then resources.

6) The understanding of the cost driver for each activity gives better control over the factors that cause costs.

7) It provides accurate information on profit margin and performance measurement for profit improvement.

8) It gives businesses an opportunity to their competitive position through better information.