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Difference Between Activity Based Costing (abc) and Traditional Cost Accounting (tca)

Autor:   •  April 9, 2011  •  Case Study  •  1,731 Words (7 Pages)  •  1,192 Views

Page 1 of 7

Topic: Activity Based Costing

Submission Date: 16 march 2011

Word Count: 1770

Name: Mary Moss

Student No: L00084540

Class: Buss Yr 2

Contents

Page 2 …………………………………….. Introduction to Activity Based Costing

Page 2…………………………………….. Benefits of ABC

Page 3…………………………………….. Traditional Cost Accounting (TCA)

Page 4…………………………………….. Difference between ABC and TCA

Page 5…………………………………….. Numerical example using ABC and TCA

Page 8…………………………………….. Bibliography

Introduction to Activity Based Costing

Activity Based Costing (ABC) emerged in the 1980s from the rising lack of relevance of traditional cost accounting methods. It took just a short time for ABC to be accepted as an original and potentially valuable costing methodology, yet it took a further 20 years to reach its full potential. ABC surfaced in response to competitive demands that exposed errors in cost accounting. Early uses helped companies see the deformities in cost accounting systems leading to changes in policy, processes, operations and improved competitive position. The ABC method originates from a simple principle, this being, ‘activities consume resources and customers consume activities'. It is a method of allocating costs to products and services and is commonly used as a tool for planning and control. It was developed as an approach to tackle problems that were related with traditional cost management systems, as this system inclines to have the lack of ability to precisely determine actual production and service costs, or supply useful information for operating decisions. With these deficiencies managers can be exposed to making choices based on imprecise data. ABC permits managers to assign costs to activities and products more precisely than traditional cost accounting methods allowed for

Benefits of ABC

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