Final answer:
Activity-Based Costing offers a more accurate cost representation and helps in reducing overhead costs, but the implementation is time-consuming and costly, which may not be ideal for smaller, less complex companies.
Step-by-step explanation:
Activity-Based Costing (ABC) is a method of assigning costs to products and services based on the activities that go into producing them. A key advantage of ABC is that it provides a more accurate cost representation, leading to better pricing strategies and financial decisions. Companies can identify high overhead costs and find ways to reduce them. However, implementing ABC can be time-consuming and costly due to the detailed tracking of activities. Moreover, ABC may not be as beneficial for smaller companies with less complexity in their operations.
Advantages:
- Accurate cost representation for pricing and decision-making.
- Helps identify and reduce overhead costs.
Disadvantages:
- Time-consuming and costly implementation.
- May not be practical for small or less complex companies.