‘Activity based approaches have been implemented in many manufacturing organisations in an attempt to provide the ’true’ cost of products. The approach has little relevance in the service industry as product cost is not needed for stock valuation.'

The first criticism is in relation to the comment that ABC will result in the true cost of a product. While many manufacturing organisations have introduced activity based approaches, it is not provide the ‘true’ cost of products. ABC still involves the arbitrary apportionment of overhead, and can be subjective. It may provide a more accurate or realistic figure for overhead, but it will not be a true figure.

The second criticism is in relation to the relevance of ABC to service organisations. While service organisations may not have tangible stock that requires stock valuation processes, (acceptable to accounting standards, there are significant benefits or reasons for implementing ABC in a service setting. ABC is not just a product costing system for stock valuation purposes, but an accurate approach to identifying costs associated with products and activities in an organisation. Decision making will be enhanced with more accurate and reflective costs. ABC is not just about pricing, it also provides a new and useful approach to cost control, often highlighting activities that are too costly or don’t add value. Indeed research has shown that many service organisations have implemented ABC approaches.