Traditional costing is a method in accounting where the manufacturing overhead costs are allocated to the products manufactured. It is also called as conventional costing.
In traditional costing, overheads are allocated using blanket rate while in activity based costing overheads are allocated by the activities performed.
in backflush accounting the inveniery is not hold.work in process is not involved
Activity based costing has primary difference of allocation of overheads which are based on activities performed by any department while in traditional costing system overheads are allocated on predetermined rate which may be not very accurate.
An activity-based absorption costing system defines the cost by how many activities a product unit uses. A traditional absorption costing system defines the cost by how much money went into making the product unit.
Over costing and under costing occurs because overhead cost is applied first using some ratio to find out the cost of product before the process of production done and actual cost found.
In traditional costing, overheads are allocated using blanket rate while in activity based costing overheads are allocated by the activities performed.
in backflush accounting the inveniery is not hold.work in process is not involved
Activity based costing has primary difference of allocation of overheads which are based on activities performed by any department while in traditional costing system overheads are allocated on predetermined rate which may be not very accurate.
An activity-based absorption costing system defines the cost by how many activities a product unit uses. A traditional absorption costing system defines the cost by how much money went into making the product unit.
Over costing and under costing occurs because overhead cost is applied first using some ratio to find out the cost of product before the process of production done and actual cost found.
Main disadvantage of tradional costing system is that it allocates the overheads based on formula which is not accurate because it allocates the cost to department which even not performed any work. It is also a disadvantage is that, it allocates the cost of idle capacity to units as well instead of charging it to income statement.
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False. Activity-based costing is used to allocate indirect cost into direct costs.Regardng direct cost, traditional costing is as appropriate as activity-based costing.
Activity-based costing is a form of cost refinement, designed to obtain greater accuracy than traditional allocations in cost assignments for product costing and decision-making purposes.
Traditional costing system allocates the idle capacity cost to completed units while activity based costing only allocates the cost of capacity which is utilized while remaining capacity is expensed to income statement as period cost.
Costing without assumptions is known as zero based costing.In zero based costing each and every parameter of cost is derived either through Experiments or through formula.
Direct labor