Implementation of activity based modal solely depends on the
capture of required data at a given period of time. The accusation of data at
such a scale results in the slow performance of operations, processes and
administrations in an organization. A large amount of the time of the employees
is consumed in gathering data and calculating a particular portion of the total
manufacturing cost. In Activity based modal it is sometimes difficult to trace
costs such as it is difficult to assign the portion of chief executive salary
that is involved in the production of a certain product. Such costs are called
as business sustaining costs and not involved in activity based costing modal
as there is no meaningful method to calculate them.
Another limitation of the activity based accounting is that
it is a relatively costly method of calculating cost. While the cost related elements are calculated
and gathered manually the completeness and the comprehensiveness of the method
of activity based costing will be poor. In order to reduce the implementation
cost of the activity based model it is recommended that the data must be
captured through traditional accounting systems and then lead to the desired
activity based costing modal to calculate actual costs associated with products
or services.
Activity based costing requires special engineering, testing
modules, machine set ups and other activities that are more costly as compared
to the traditional accounting system.
There is no evidence of the success of implementation of
methodology in the public administration sector other than justifying the
existing budget strategies. Another disadvantage of activity based costing is
that it makes every waste and mistake visible and hence proves alarming system
for a number of executives and administrators. Complexity is another issue that
makes activity based costly modal not easy to implement. For a number of
employees and administrators activity based system remains difficult to operate
and comprehend. Activity based costing modal requires much of the organization
resources in terms of employees, time and funds as a result it proves too
costly to implement.
