Question

How can broad averaging (peanut butter costing) inappropriately cost products or services? What are the potential problems that can arise from using a traditional costing system? Give an example of a well-known company, and identify what it might use to allocate overhead costs to products using a traditional system. Next, indicate what activities the company might identify if they were to use an ABC system. Why might an ABC system be better?

Answer 1

problems of traditional costing 1)it offers limited accuracy even in the bestof situations 2)it wants to ignore unexpected circumstances 3)its not always help full system 4)its does not account for manufacturing costs 5) it shows un necessary cost data abc costing is more accurate than traditional costing system this is bcoz they provide a more precise breakdown of indirect costs .how ever abc implementation is more complex and cost effctive .the leap from traditional costing activity to activity based costing is difficult.