Thursday, December 25, 2008

Activity Based Costing Method Differences

How is activity based costing different from traditional costing methods?

Activity-based costing differs from traditional costing systems in three main different ways:

  1. In activity-based costing (ABC), non-manufacturing and manufacturing costs may be assigned to products produced by a firm.
  2. Some manufacturing costs may be excluded from product costs using activity-based costing (ABC) that are included with traditional costing methods.
  3. An activity-based costing (ABC) system will usually include a number of activity cost pools determined by the company, each of these cost pools has a unique measure of activity. These measures of activity can differ from the allocation bases that are normally used in traditional costing systems.
  4. The activity rates are different from typical predetermined overhead rates because they should be based on activity at actual capacity rather than depending on a more inaccurate budgeted levels of activity.

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