Activity based costing is a method of cost attribution to cost units on the basis of benefits received from indirect activities. Their performance of particular activities and demands made by these activities on the quantity of resources of organisation are linked together so that the cost of product is arrived at as per the quantum of actual activities performed to [...]
The upcoming discussion will update you about the difference between Traditional Costing System and Activity-based Costing System (ABC). Difference # Traditional Costing System: 1. Single or limited number of cost pools or cost centres exist. 2. Overhead costs are first related to the various production and service departments and then to products. 3. Overhead costs are charged to products on [...]
The following points highlight the top ten factors for developing Activity-Based Costing (ABC). 1. Traditional product costing systems cannot report accurate product or service cost. 2. Traditional costing methods of overhead absorption use volume-related measures, such as direct labour hours, or machine hours etc. But there are many overhead expenses which are not related to physical volume. These are related [...]