Question

can comeone please provide me with A thorough example of how traditional costing is different from Activity based costing in a manufacturing company

Answer 1

Traditional Costing vs Activity based Costing in a manufacturing company

Basis......	Tradional Costing..........................................	Activity based costing....................................................
Meaning and objective	It is a method of casting used to allocate overhead costs based on a single cost driver. Example------ -ABC ltd manufactures soft drinks and is planning to produce 10000 drinks for next month.By apply this method,the company will apply the cost drivers based on a single activity level---- either labour hours or machine hours	It is a method which allocates overhead cost for each different activity by applying different cost driver specifically selected for such activity. Example---- If we apply,ABC ,this technique would select the following ------ Activity Cost driver *direct supervision machine hours    *logistics Labor hrs *production set up    Number of set ups
Primary focus	Focus on apportionment of overhead cost to the activities of production	Focus on determination of cost drivers for every different activity
Impact on business operations	This method doesn't force management to look for different cost centres ,so to collect incremental data for productive activities increases workload of management	This method improves long run business processes and helps management to control and manage these costs.
Different cost drivers	It uses identical cost driver for different activity	It used multiple cost drivers for various activities.
Suitability	As it is a simple ,understandable and conventional method of costing ,it is suitable to only small firms with low overhead costs	This method requires a big amount of work load to management which requires specialist staff,it is suuitable for medium to large firms
Scope	It is used by manufacturing firms for the absorption of manufacturing overheads	It is used by both manufacturing and non manufacturing concerns