Activity Based Costing VS traditional costing.

Activity based costing is method of allocating overhead cost by allocating it basing on the activities which drive it rather than using arbitrary allocation base as in the traditional costing.

(adsbygoogle = window.adsbygoogle || ).push({});

The following are differences between activity based costing (ABC) and traditional system of assigning overhead to product

Traditional system uses single rate while activity based costing uses multiple rates.
Traditional system apportion cost to cost centers while activity based costing (ABC) puts cost into cost pools.
Activity based costing (ABC) will look for cost drivers as the bases of establishing the absorption rate while traditional system may use any acceptable base