ACTIVITY BASED COSTING

Accounting Management Control:
ACTIVITY BASED COSTING















“Activity Based Costing is a new approach to costing, which has been gaining acceptance over the past 20 years. It is claimed to be a superior costing system to the older traditional job costing method, both as a method of costing output and as a means of cost control.”

Required:
Compare and contrast Activity Based Costing with the traditional Job costing method. Explain the reasons behind the proposed change, and the advantages and disadvantages of ABC.

Activity Based Costing (ABC) and the traditional job costing methods have one similarity in that they both assign indirect costs or overheads to cost objects. An example of a cost object may be a product or a service. These indirect costs cannot be linked directly to a cost object as they are often mutual to several cost object. These indirect costs are assigned to cost objects using cost allocation. An example of this would a cost incurr...