Question
Common challenges in applying activity-based costing include: difficulty in identifying all activities and assigning costs to them, resistance from employees due to change in traditional costing methods, and the time and resources required to implement the system. These challenges can be overcome by: providing adequate training to employees, using software to automate the process, and ensuring top management support for the change.
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The MIT researchers write: "One of the most attractive and counterintuitive characteristics of activity-based costing arises from the previously untapped sources of added value that it allows a company to discover. As the emphasis on costs shifts from labor to overhead, companies are changing their business strategies to capture these gains. Although overhead costs now dwarf labor costs as a percentage of overall expenditure, companies have not changed the methods they use to quantify costs."
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