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Activity-based costing assigns overhead costs

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What are the differences between using traditional, volume based systems and activity-based costing in assigning overhead costs to product lines that are diverse and complex in nature?

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Solution Summary

The expert determines the differences between using traditional, volume based systems and activity-based costing in assigning overhead costs to product lines that are diverse and complex in nature.

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In this situation where the company has a diversified product line and is subject to complex processes, and where products are subject to quite different processes and efforts, using direct labor costs or any other single activity base in applying overhead costs would assign costs to the different products inaccurately. Different products may consume resources quite differently. In this case, using activity-based costing (ABC) to assign overhead costs may be a better choice for the company. It works in the following way:
1. Identify significant activities in the ...

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