Given the precise cost of the object, ABC costs can provide a clearer and more accurate cost metric in most cases. It seems that most of the places that use activity-based costing are businesses and manufacturers. However, at first glance I don't understand why sports franchises cannot use activity-based costing. It seems that there are clear cost drivers that can be assigned to each cost object. Currently, almost all sports franchises choose to use cost-based costing instead of ABC.
I will try to delve into why this is the case and decide whether it is reasonable to consider activity-based costing.
The benefits that can be achieved if you want to use activity costing are very impressive. I will review some of them. The first is better profitability measures, mainly due to more accurate product costs, which in turn leads to more accurate profitability measurements. Second, ABC can enhance decision making through more accurate activity-driven costs, which can help managers increase product value and product delivery processes. Next is the cost estimate, which uses improved product costs to better estimate pricing decisions, budgets, and plans.
Although activity-based costing has great benefits, like most other things in life, it has its limitations. The first is a cost driver that is not clear and easy to track for all costs. Many costs may require complex allocations to achieve the available cost drivers. The second is to omit some costs, such as marketing, advertising, research and development, which are part of the cost of the product or service. Finally, in my opinion, the most important thing for a sports franchise is the cost and time that may be required to perform an accurate activity based on cost analysis. Activity-based costing systems are expensive and time consuming to develop and implement, and like most innovative accounting systems, ABC can take a long time to successfully implement into an organization.
The problem that sports franchises are most likely to encounter when trying to develop and implement an activity-based costing system is to accurately determine cost objects and cost drivers. Some of the typical costs of sports franchising will be cleaning supplies, food costs, labor, maintenance, wages, equipment, etc... The cost drivers that accurately determine all of these things seem too difficult and not worth the time or money.
However, I do believe that applying an activity-based costing system to a more focused area [such as a franchise] may have its advantages. The reason for this is that it is not difficult to allocate cost drivers for food, which will make the tracking and distribution costs of the franchise franchise more accurate.
Activity-based costing can be an ambitious way to accurately allocate costs to various objects, and it is undeniable that activity-based costing can be beneficial when cost drivers are easily identifiable. However, as far as sports franchises are concerned, I think costs and restrictions may bring benefits. The time and money required to successfully implement a sound system is impractical.
Orignal From: Is ABC cost beneficial or not beneficial to sports franchising?
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