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In traditional costing, overheads are allocated using blanket rate while in activity based costing overheads are allocated by the activities performed.
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.
Direct labor
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.
needs of product costing system
In traditional costing, overheads are allocated using blanket rate while in activity based costing overheads are allocated by the activities performed.
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.
Direct labor
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.
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.
needs of product costing system
Job order costing is more appropriate than process costing when the product being produced is a custom product
Product cost accuracy is a term used in the accounting field. It essentially defines the amount of money it actually costs to produce a product.
variable costing
Standard costing is process of determining the standard price require to produce one unit of product while actual costing system uses the actual prices of manufacturing one unit of product.
Traditional Cost Accounting System: In this system company first produce the product and then determine the cost of production and then try to sell that product at price covering that cost plus certain percentage of markup on cost.Target Costing: In this system first of all company determines the value of product in the eyes of customer that is how much a customer is willing to pay for the product and then if cost of production of that product is more then the customer willing to pay then company makes analysis of how they can reduce the cost of production to the level of cost a customer willing to pay by reducing the components of product which is costing towards final price but not giving any value to customer and in this way company tries to acheive the target cost customer willing to pay.
Target costing refers to the design of a product and the processes used to produce it , so the ultimately the product can be manufactured at a cost that will enable the firm to make a profit when product is sold