Application and Successs of Activity- Based CostingABC works on the philosophy that customers demands are the facctors which generates activities on the part of the company and a company consumes activities for the demanded products/services. If a compnay looks at its costing from the perspective of the activities it undertakes, it will help the company to choose which activities are the most valued for it. Once identified the company can focus and improve that activity giving it a competitive advantage. A company can the following varous processes of ABC to create high-valued and high-quality products:Product Pricing : Every activity is assigned a cost in ABC method and as a result the total cost for the whole product/service can be accurately found out. This can thus help us identify the redundancies or increase in costs.Product Design : Identifying activities that create value for product/service and those which do not. This helps to assign and allocate resources and capital to valued products and inherent activities in a much better way.Product Profitability Analysis : Capital and resources can also be effectively assigned when the profitablilty can be analysed product wise. So the products/services which are giving the most profits should be given more importance and the other products should be given less importance or dropped as per the findings.Customer Profitability Analysis : It helps to identify the customers who are responsible for the major chunk of the profit and who are not contributing to much of the profit. This way the major emphasis should be given to the valued customers or customer groups.Decision Making : The findings above can give detailed insights about the companys various activities, products/services, profits, customers and other value-driven attributes. Knowing this and identifying the importance helps a company to decide on their actions regarding this aspects.Construction and manufacturing companies have most of their costs due to direct costs. Cost of raw materials and labor costs accounts for a big chunk. Their cost structures are much of clear hence the need for ABC is somewhat limited in their case. In these sectors, ABC helps by identifying where the labor costs could be reduced by automating the process or if costs could be reduced by rectifying the raw materials procurement process. Services companies are more suited to implement ABC since they have more indirect costs in their cost structures. So Implementing ABC makes more sense since it may help them to identify more areas of improvement as far as costing is concerned.Since ABC gives us a more detailed breakup of the current cost structure, it also gives us a clear picture of identifying the looppholes in the current structure, modify the current structure and implement the new structure. Top managament are the drivers of the implementation of ABC process. Also, size of the firm and integration with the firms financial system are vital points in the implementation process.The larger the firm size, larger is the need of ABC to manage it effectively and hence the greater need of a better integration with the financial system. The challenges faced by big firms are mostly to manage time for going through the steps involved in ABC as more is the activities and transactions for a firm, more will be the time taken in implementation. One interesting thing to note is that with the increase in complexities of the modern age firms, there is an increase in implementation of Enterprise Resource Planning systems in firms, it becomes a challenge to see whether ABC will be able to complement the ERP systems. Probably that is why companies like SAP and Oracle who produces ERP products are trying to integrate the ABC functionalities in their products. Oracle acquiring Activa(an ABC product produced by PricewaterhouseCoopers) and Peoplesoft partnering with KPMG to come up with an ABC tool are examples of such endeavors. Thus although ABC can be very useful in comparison to TCA,it maybe somewhat hard to implement, since it becomes tough to identify the actual cost drivers. The seven steps before are the key to the success of hte implementation. Wrongly assessing any one of them would result in the whole re-engineering process to be formulated incorrectly which in turn will result in a failed implementation of ABC. So it is sometimes useful to reject implementing ABC in a specific organization if it looks tough to carry out the processes of ABC properly. It is very important to have an open minded culture in the firm and accept the shortcomings identified in different departments of a firm since identification of loopholes and waste in a department to the whole firm could make managers and department heads feel insulted and exposed.