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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.
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.
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.
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.
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.
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.
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.
Ask your Mom she might know shes old
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.
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.
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.
b
to calculate the profit easilly
In traditional costing system overheads are spread over volume of production by using spread rate which is called blanket rate or absorption rate while in ABC costing costs are allocated on the bases of actual activity performed in specific cost centers so this is a accurate method for allocating costs according to activity performed and not with just any estimated rates
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.
in backflush accounting the inveniery is not hold.work in process is not involved