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Traditional And Traditional Cost System

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TRADITIONAL COST SYSTEM
Many firms are now reconsidering their use of the traditional cost systems, and are referring to the systems as incomplete and unprocessed (Manalo, 2014). A traditional product costing system is the allocation of manufacturing overhead cost to the products manufactured (accountingcoach.com, 2014). It takes into account cost drivers such as machine hours, direct labour hours, and direct material hours. Most users of traditional product costing systems assume that volume metrics is the underlying driver of manufacturing overhead cost; under this system, manufacturing cost is only assigned to products (Johnson, 2014).
Although the traditional product costing systems are a requirement imposed by GAAP, investors, financial reporting, and other accounting rules and regulations, it has some disadvantages and no longer provides better decision making or a strong link between strategy and operations for managers. The system fails to allocate nonmanufacturing cost like administrative expenses. During the time traditional costing methods were created, direct labour was the biggest cost of production, but today, the system is outdated (Johnson, R. 2014). Manufacturing companies today now use machines and computers for their productions; this has led to a decreased use of labour in manufacturing processes and the development of other costing systems such as activity-based costing (Pondent, 2014). Unlike traditional, ABC costing systems assign resource costs to

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