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Using Activity based costing, why are indirect costs allocated while direct costs are not allocated?

Using Activity based costing, why are indirect costs allocated while direct costs are not allocated?

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Using activity-based costing, why indirect costs are allocated while direct costs are not allocated ?

In activity based costing non manufacturing as well as manufacturing costs may be assigned to products, but only on a cause and effect basis. Some manufacturing costs may be excluded from product costs. Numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity.

In traditional costing only manufacturing costs are assigned to products. Selling and administrative expenses are treated as period expenses and are not assigned to products. However, many of these non manufacturing costs are also part of the selling and dostribting , and servicing specific products.

For example, commissions paid to sales persons , shipping costs , and warranty repair costs can be easily traced to individual products. In the activity based costing we use the non manufacturing as well as manufacturing costs, since we we will be determining the entire cost of a productrather than just its manufacturing cost.

ekkarill92 answered 1 year ago
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