Bhimani, Horngren,
Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012 too many activities is that the company may get bogged down in a morass of detail and the implementation may fail. ABC can help managers control costs in two ways. First, employees can try to reduce consumption of the allocation base. Second, ABC can provide incentives to reduce the indirect cost allocation rate for each activity (because the cost of each activity is now visible. A manager can be rewarded for reducing the indirect-cost rate for an activity because the accounting system visibly links the manager to this cost reduction. (Ina
single MOH cost pool system, managers have little incentive to reduce MOH. The effects of any reduction are not linked to a particular manager, if all the MOH is aggregated in one pool)
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