Question

What are the differences between a traditional cost accounting system and an ABC cost accounting system? ABC systems are always more accurate than traditional accounting systems. Do you agree with this statement or not? Explain.

Answer 1

Traditional Costing	Activity-Based Costing
It uses average overhead rate for costing manufacturing products.	It uses overhead rates specific to each product.
It is useful when direct costs are higher compared to overhead costs.	It is useful where high overhead rates are applied.
It is easier to calculate and cost effective to implement.	It is hard and costly to implement.
It is less accurate.	It is highly accurate.

ABC systems are more accurate than traditional accounting as it involves calculating overhead costs specific to that product and unlike traditional cost accounting applying average costs to each product. Though ABC systems are costlier but if the production team requires accurate cost of production of each product then ABC systems are more accurate.