Companies can choose from different costing methods processp

Solution

Activity Based Costing and product costing are two methods to allocate indirect overhead cost to product.

Under Product Costing simply assign overhead on a single basis (generally higher actiiy level eg:machne hours) and are allocate overhead weighted to individual units of finished product.

for eg: Total Overhead /Machine hours

But at the same time Under ABC Costing overhead is assigned on Basis of all Cost Pools, cost pools are the activities undertaken in production eg: labour , machine. Which then Measure Cost Pool using each Cost Driver , Cost driver is the activity measurement basis eg: labour hours , Mahine Hours.

Like above each factors are considered under ABC costing to get appropriate Allocation of Overhead.

Traditional Costing system are not accurate so will give higher value of Overhead allocated for higher amount of basis selected.

Which method would you recommend for your company, and why?

It totally depends upon the size and level of activity of busness even ABC gives better resukt it is complex for calculation while Product costing is easy method for allocating overhead.

So decision will be relative upon business.