Question

What are the differences between activity based costing and process costing?

Answer 1

The activity-based costing and process costing are two different methods for allocating indirect (overhead) costs to products. Process costing starts with the equivalent units concept, which is the amount of in-process production expressed in the terms of finished units. The cost per equivalent unit is measured and turns to be the basis for final cost allocation between the finished goods and work in process. Activity-based costing is an alternative approach that looks at business activities and identifies the related costs. Those costs are then assigned based on how a specified activity is consumed in the process of production. Process costing is less accurate but more simplistic than ABC