Manufacturing company adopting ABC, like Cadbury, faces their own difficulties in determining the costs of its various products. There is a need to mention about its current costing system and their management practice before presenting further explorations of the difficulties they come upon. The current method they used is called Absorption Costing, which supports the ABC. Cadbury divides the total cost of products into, direct material, direct labour, variable factory costs and fixed factory costs, based on the absorption costing method. Managers usually need to estimate the costs of the products before they are made, in order to make pricing, budgeting, and marketing decisions. Because the fixed factory costs are included in the product cost, the units of its cost drivers, like production volumes, need to be estimated, so as to allocate these costs into the products before it is on the market. However, when the actual production volume is not equal to the estimated figure, the estimated cost of the products would be different from the real figure. Consequentially, the budget would fail to meet the factory's need. Furthermore, the Cadbury NZ heavily relies on imported raw materials. For examples, the cocoa is imported from Singapore, the oil is from Germany, and the sugar is bought in the US commodity market. The fluctuation of exchange rate must be taken into account, as well as the possible movement of the prices in the world market. When there is a sudden change in the exchange rate of foreign currencies against New Zealand dollar, the absorption method might not be able to capture this in the COGS figures. In this case, the Cadbury usually absorb this in the overheads, instead of in the raw material account. According to the accountant of Cadbury, the absorption method suit the firms need most at this stage, despite of its limitation of handling estimations.
Secondly, some service entity, like hospital, may come across problems in determining the costs of the services it provides, as the technology advances.
