Editing Activity-based costing (section)

== Limitations ==
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Applicability of ABC is bound to cost of required data capture.<ref name=":0" /> That drives the prevalence to slow processes in services and administrations, where staff time consumed per task defines a dominant portion of cost. Hence the reported application for production tasks do not appear as a favorized scenario.

===Treating fixed costs as variable ===

The potential problem with ABC, like other cost allocation approaches, is that it essentially treats fixed costs as if they were variable. This can, without proper understanding, give some people an inaccurate understanding which can then lead to poor decision making. 
For example, allocating [[Fixed asset|PPE]] to individual products, may lead to discontinuation of products that seem unprofitable after the allocation, even if in fact their discontinuation will negatively affect the bottom line.

===Tracing costs ===

Even in ABC, some overhead costs are difficult to assign to products and customers, such as the chief executive's salary. These costs are termed 'business sustaining' and are not assigned to products and customers because there is no meaningful method. This lump of unallocated overhead costs must nevertheless be met by contributions from each of the products, but it is not as large as the overhead costs before ABC is employed.

Although some may argue that costs untraceable to activities should be "arbitrarily allocated" to products, it is important to realize that the only purpose of ABC is to provide information to management. Therefore, there is no reason to assign any cost in an arbitrary manner.

=== Transition to automated activity-based costing accounting ===

The prerequisite for lesser cost in performing ABC is automating the data capture with an accounting extension that leads to the desired ABC model. Known approaches for event based accounting simply show the method for automation. Any transition of a current process from one stage to the next may be detected as a relevant event. Paired events easily form the respective activity.

The state of the art approach with authentication and authorization in [[IETF]] standard [[RADIUS#Accounting|RADIUS]] gives an easy solution for accounting all workposition based activities. That simply defines the extension of the ''Authentication and Authorization'' (AA) concept to a more advanced ''AA and Accounting'' (AAA) concept. Respective approaches for AAA get defined and staffed in the context of mobile services, when using [[smart phone]]s as e.a. [[intelligent agent]]s or smart agents for automated capture of accounting data .