Title Costing Systems - Chapter 3 - part 1.pdf ✅

Under Traditional costing system, Overhead is simply dumped into single cost pool and spread across all end products, using one single application (OH) rate Traditional Costing System Indirect Material Indirect Labor Utilities Insurance Depreciation IDL IDM U Single Cost Pool MOH Product A Product B Product C Allocated to Via allocation base (cost driver) = MH
In accurate spreading of Indirect Cost over different Products that may use different amounts of resources (Peanut butter costing) ABC is an overhead allocation method that uses multiple overhead rates to track Indirect costs by the activities that consume those costs. - ABC is a refinement of the traditional (job order and Process) costing systems - It Overcomes Peanut butter effect, however it is more costly and time consuming. - It brings management attention to the activities that don't add value to the final product that should be reduced or eliminated. (Process Value Analysis) Activity - based costing (ABC) Traditional costing system