I’m studying for my Business class and don’t understand how to answer this. Can you help me study?
Please write 2 pages with 3 sources on the following:
Which method; activity based costing (ABC) or traditional costing do you think is a better approach to costing and why? Be sure to include in your discussion how you think the method you selected is helpful to managers and would benefit the company as a whole.
From the professor:
Companies that manufacture different products may benefit from using activity-based costing (ABC). Normally companies throw everything into an overhead account that is not direct labor or direct materials. ABC separates those costs into activities such as how many purchase orders are used or how many machine setups are required. There will still be miscellaneous costs in overhead. Miscellaneous items include things like machine oil or tiny washers and screws too small to track. ABC is a lot of work but it helps determine where the costs are associated with different products.