Describe the differences between traditional cost accounting

Describe the differences between traditional cost accounting systems and activity-based costing. How is activity based costing more appropriate for modern manufacturing systems?

Solution

The traditional cost accounting system provides the cost estimate to the product by calculating the average overhead cost/rate. This traditional method will calculate all the indirect costs incurred at the time od manufacturing the product and average out the total cost depending on the time of implementing the particular stage.

The activity based costing system on other hand is more complex in implementation than traditional cost implementation since it calculates the cost of each cycle and then effectively computes the average depending on each unit requirements.

Activity based costing is more appropriate for modern manufacturing systems since it provides the accurate time spend in each of the particular implementation, hence it is better for the modern system where we require high precision of calculation and accuracy in order to set up for a particular product or not