Participation Exercise #9 - Assignment Example

Participation Exercise #9: Question One: What is the difference between “traditional” and “activity-based” costing?Activity Based Costing ABC applies the costing to identify activities in an organization making it more efficient compared to the traditional costing system that base on the machine hours to allocate costs. The costing system easily allocates the actual costs that each activity incurs compared to the traditional system that may generalize costs giving some activities costs that they did not incur making it less effective.

The traditional costing system works better for retail companies while the traditional system works better for manufacturing companies due to its ability to allocate each overhead based on the activity that each process in production takes. Question Two:What types of companies would benefit from ABC costing? Explain?Activity Based Costing is more efficient to manufacturing companies and provides a more efficient, effective and economical costing system. The different manufacturing companies have different activities that together make up the overheads that the company incurs in their operations.

Its application to manufacturing companies will provide an easy accounting and costing system that will aid in providing more accurate accounting in an efficient manner. The costing system also considers the application of overheads to the different products produced in a manner more logical hence successfully compared to the traditional means that allocate costs to the different machine hours employed. The ability of the system to consider each activity and its costs makes it more efficient for manufacturing companies due to their approach to costing and operations.

It bases on the different activities that prove to be the real cause of the overheads.