1. Expansion from product to channel and
customer profitability analysis
I would like to believe that the reporting of more accurate
product and standard service-line cost and profitability
information using ABC principles is now
common. ABC traces expenses into cost with resource
and activity drivers and provides much cost visibility that
is traditionally hidden. Sadly, many organizations continue
to use a single indirect and shared expense “pool”
that allocates resource expenses into costs based on a single
cost factor, which violates cost accounting’s causality
principle. Hence, compared to ABC’s disaggregating a
single cost pool into multiple ones and tracing each
pool with an activity cost driver based on a causeand-effect
relationship, the existing costs are flawed and
misleading. The products and service lines are simultaneously
over- and under-costing because allocations always
have a zero sum error. It’s baffling how accountants can
accept this deficient practice when ABC is a better
alternative.