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Contrast traditional and an ABC cost accounting system

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What are the differences between a traditional cost accounting system and an ABC cost accounting system? ABC systems are always more accurate than traditional accounting systems. Do you agree with this statement or not. Explain.

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Solution Summary

This solution provides an accounting discussion, which is clear and minimizes technical words so it is suitable for novice to intermediate. A computation is attached as an illustration.

Solution Preview

See attached example computation with discussion for your review.

Traditional cost systems use one cost driver to allocate overhead to products/batches/jobs. This activity is selected as the driver most related to largest component of overhead. Prior to automation, this was typically direct labor costs or direct labor hours. In the age of automation, machine hours are used more often.

Activity based systems ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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