Advantages:  ABC brings accuracy and reliability in product cost determination by focusing on cause and effect relationship in the cost incurrence. ABC provides cost driver rates and information on transaction volumes which are very useful to management for cost management and performance appraisal of responsibility centres.

Disadvantages:  ABC has numerous cost pools and multiple cost drivers and therefore can-be more complex than traditional product costing systems. It can prove costly to manage the ABC system.  ABC has different levels of utility for different organizations such as large manufacturing firms that can use it more useful than smaller firms. Also, it is likely that firms depending on cost-plus pricing can take advantages from ABC as it gives accurate product cost.

My recommendation would be to use ABC to the firm’s advantage by using it to identify cost behavior and better decision making.  With ABC, managers are able to control many fixed overhead costs by exercising more control over the activities which have caused these fixed overhead costs.  ABC greatly improves the manager’s decision making as they can use more reliable product cost data. ABC helps usefully in fixing selling prices of products as more correct data of product cost is now readily available.