Activity Based Costing (ABC) analysis is recognized as a technique required for betterment of inventory management. An inventory classification approach, like A is a costly product whose requirement is low. B is an average cost product whosedemand is also average and C is a mass product in low price range but demand is very high.It is basically a type of research based analysis which is implemented by the develop countries. Developed countries are adopting ABC now a days for the betterment of calculating costs more perfectly, ensuring product availability as well as to manage cost etc. It is a costly IT based analysis, so South Africa being a developing country finding it difficult for adopting it.
South African organizations’ or companies are avoiding ABC as it results in increment in the overheads cost.South African companies want to remain in their traditional costing system. In a survey it has proved that overhead cost of the companies in developed countries are bigger than the branches which are existing and operating successfully in South Africa. Another reason for not implementing ABC system is that it leads to increment of the pressure from the regulatory authority. In the develop countries regulatory authorities are tighter than South Africa. In a develop countries regulatory authorizes are demanding more transparency and efficiently business operation in the country. On the other hand it creates more accuracy that can be delivered by the ABC (Reserch gate, 2007)And along with this, the demand of the products can also be evaluated with the help of ABC in regard to many other products lines present. Therefore, ABC approach is considered more effective than others.
Reserch gate. (2007), The design and implementation of activity-based costing (ABC): A South African survey research.
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