Traditional Based Costing
1 Relying exclusively on volume measures such as direct labor hours or machine hours to assign overhead costs to products
2 Assign only manufacturing costs to products.
2 Assign all manufacturing costs to products
3 Often use a single plant-wide overhead pool or just one overhead pool per department. Rely solely on volume as the base for allocating overhead costs. The most common allocation bases in traditional cost systems are direct labor hours and machine hours. These bases work correctly when changes in the quantity of the base are correlated with changes in the overhead costs being assigned using the base.
Whilst ABC advocates:
Activity Based Costing
1 Often use direct labor hours, machine hours, or other unit-level allocation bases to assign the portion of overhead costs that move in tandem with the volume of production.
However, unlike traditional systems, ABC also uses additional allocation bases that are not related to the volume of production to assign overhead costs that are not correlated with volume.
2
Assigns both manufacturing and non-manufacturing costs to products.
For example, ABC systems can assign sales commissions, shipping costs, and warranty repair costs to specific products.
3
Do not assign all manufacturing costs to products
· ABC only assigns a cost to a product if decisions
Concerning that product will cause changes in the cost.
4
Uses more cost pools.
ABC cost pools are created to correspond to the activities performed in an organization that cause the consumption of overhead resources. The total number of ABC cost pools will definitely exceed one (as in the pl ...