When the accuracy of the traditional costing system is not good then management takes up activity based costing.
Activity-based costing is a more precise approach of costing products and services, resulting in more accurate price decisions. It raises managers' knowledge of overheads and cost drivers, and it draws attention to costly and non-value-added processes, allowing them to be decreased or eliminated.
Traditional costing is best employed when a company's overhead is modest in comparison to the direct expenses of production.
Traditional costing techniques are less accurate than that of activity-based costing systems. This is because they provide a more precise analysis of the indirect expenditures. The ABC systems, on the other hand, are more difficult and expensive to deploy.
Therefore, the answer is inaccurate results lead to use of activity based costing method by the management.
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