MANAGERIAL ACCOUNTING F/MGRS.
MANAGERIAL ACCOUNTING F/MGRS.
6th Edition
ISBN: 9781264100590
Author: Noreen
Publisher: RENT MCG
Question
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Chapter 5, Problem 5.1Q
To determine

Concept Introduction:

Activity-based costing (ABC):

Activity-based costing refers to the method of costing where the overhead cost is assigned to various products. This costing method identifies the relationship between the manufacturing overhead costs and the activities. After establishing the relationship, the indirect cost is allocated to the products.

Explain the difference between activity-based costing and traditional costing methods.

Expert Solution & Answer
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Explanation of Solution

Difference between activity-based costing and traditional costing methods:

The activity-based costing differs from traditional costing methods in mainly three ways which are as follows:

  • The costs of manufacturing and non-manufacturing are assigned to the products in case of activity-based costing.
  • The traditional costing system allocates costs on the basis of volume while the ABC system allocates on the basis of the
  • The non-manufacturing costs, which are regarded as period costs under the traditional costing methods, can be classified as the product costs as per activity-based costing.

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