[ Silence ] >> So now that we've seen what ABC can do, let's talk about the types of firms or situations where ABC is extremely beneficial. Two perspectives that we can adopt. One is operational and two is more decision making oriented. When a firm's cost structure is comprised mostly of direct materials and direct labor and overhead is a very small portion, well then we don't really have an issue with the traditional costing system. Making cost estimates based on a small amount of overhead won't hurt the firm too much; however, when overhead is a substantial portion of cost structure then the information accuracy that's brought to the table by activity based costing systems really harnesses benefits of that information. More accurate information, better decisions. Turning to those decisions there's often times a situation where an accounting department produces standard reports and when they have to spend significant resources customizing information for people then what that is a signal of is that those standardized reports are not cutting it. Information that they normally produce is not being used by decision makers in the firm and they would rather see information provided in a different way. The flexibility offered by an activity based costing system meets this need. Two other interrelated items are that product line profitability information is difficult to rationalize, and line managers do not believe product cost reports. In other words, the information that's being provided via the existing costing system isn't believable. When people have this feeling they know that there's something missing that the information could potentially be misleading and activity based costing systems can bring that information advantage to the table. And finally, a signal can come from outside of the firm as well. A firm might identify high margin or high profitability products and other products that are perhaps lower profitability. And when they see their competitors ignore what we think as the higher profitability products and the competitors are competing on the lower profitability products, then it could be that we have our cost information wrong. It could be that our traditional or over simplified system is allocating too much cost to one product and not enough to another, which makes us view the products differently in terms of profitability than other parties that have better information. Activity based costing will help us to identify these situations, especially when we see competitors shy away from our higher profitability products. So a related question is when do ABC systems not carry benefits or perhaps even fail? Well there's an old adage, garbage in, garbage out. This has to do with the information that we use as part of the development and implementation process. When managers can't make reasonable cost estimates or identify activity pools or measure drivers or identify them to begin with, then we have poor information that serves as the inputs to our system and the outputs will be poor as well. Another way in which ABC systems fail is that it unnecessarily increases complexity. In other words it makes things worse before it makes things better. If activity rates, if activity cost rates need to be updated regularly this can lead to confusion. People never know if they have the most updated information. Also, if the system is costly to operate and difficult to understand because of the high level of detail well then the benefits aren't warranting the costs. So in all, activity based costing systems are not a cookie cutter approach, it depends on the type of firm, and while there's a lot of situations where activity based costing systems help there's a lot of situations where it can actually hurt and increase the cost that the firm faces.