1.Overheads take much larger propor

1.Overheads take much larger proportion of production costs.Mechanisation causes expensive machinery and equipment beingused.The automated production process results in direct laboursbecoming immaterial.Companies sometimes regard the labour cost asfixed factory overhead,hence there is a large proportion of overheadand zero direct labour cost.2.The production process is increasingly complex.The complex process requires more activities to support aproduction.Simple volume-based distribution of overheads will nottruly reflect the actual causes of the cost.3.There are multiple products.The simple volume-basedapproach does not reflect the true cost incurred.Many products are not standard any more.Instead,companiesmake products specific to customer's requirement.The customisedproducts are often small in volume,yet can be more sophisticated.However,under traditional absorption approach,products largein volume attract more overheads,whereas these small volumecustomised products share less overheads.The problem is obvious.Weall know the customised product is not"cheap”to make.It involvesmore activities.Such volume-based distribution of overhead doesnot reflect what truly cost the company to customise the product.Thecosts of them are usually under estimated.For all the reasons above,companies are urged to improve theirmethodology to more accurately determine the production cost.