| Feature | Traditional Costing | Activity-Based Costing | | :--- | :--- | :--- | | | Few (often one plant-wide or departmental pool) | Many (one per activity) | | Cost Drivers | Volume-based (e.g., DLH, MH, units produced) | Transaction-based (e.g., setups, orders, inspections) | | Accuracy for complex products | Low (tends to over-cost high-volume, under-cost low-volume) | High | | Focus | External financial reporting | Internal decision-making & process improvement | | Implementation Effort | Low | High |
Consider two products: (high volume, simple, rarely changes setup) and Product B (low volume, complex, frequent small-batch setups). define abc costing
Traditional costing might allocate factory rent based on direct labor hours. ABC does the following: | Feature | Traditional Costing | Activity-Based Costing