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Introduction
There are three types of costing system used in costing. They are direct costing system, traditional absorption costing system, and Activity Based Costing System (ABC). Direct costing system is used to assign direct cost to the cost object. Both traditional and ABC costing system are used to assign indirect cost to the cost object. Traditional costing use an unsophisticated method to allocate indirect cost to the cost objects, while the ABC system uses a sophisticated method.
Activity Based Costing (ABC) arose in the 1980s from the increasing lack of relevance of traditional cost accounting methods. ...
Activity Based Costing (ABC) is defined as “an approach to the costing and monitoring activities which involves tracing resource consumption and costing final outputs”. Resources are assigned to activities and activities to cost objects based on consumption estimates. The ABC costing differs from the traditional costing in many ways. It has solved many problems that are faced in ABC costing.
Comparison of a Traditional and an Activity Based Costing System
Most companies allocate overheads to products using a two stage procedure. ...
Traditional cost systems focus on the product in the costing process. ...
In Activity Based Costing, activities are the focus of the costing process. Costs are traced from activities to products based on the products demands for these activities during the production process. The allocation bases used in activity-based costing are thus measures of the activities performed.
Approximate Word count = 1158
Approximate Pages = 4.6
(250 words per page double spaced)
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