Comparison of Methods of Costing

COMPARISON OF METHODS OF COSTING
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SUBJECT: COMPARISON OF METHODS OF COSTING

COMPARISON OF METHODS OF COSTING 2
Brief introduction:
The costing techniques are the methods of accounting which are used by the company to help
assess the value of the inputs and value of output in any manufacturing process. This will help
the management of the organization to evaluate with the high rate of accuracy the unit cost of
manufacturing and other indicators of key performance. This information will be very useful for
the management to take decisions in relation to the production level and future investment. It is
necessary for the purpose of management accounting (Woodruff, Jim 2019).
Similarities and Differences:
ABC and traditional costing are the two distinct methods in the area of accounting for the
allocation of the indirect costs to products. Both the methods compute the overhead costs in
connection to the production and afterwards allocate the overhead costs to the goods based on
the relevant cost driver rate but the difference is due to the correctness and complexity involved
in the two methods. Traditional costing is simpler but less correct than ABC method and it
allocates costs to the products on the basis of the average rate (Lere, J. n.d.). On the other hand,
ABC is complicated and correct. In the case, costs are assigned to the activities and then it is
allocated to the products on the basis of the utilization of the activities by the respective
products.
Advantages and disadvantage of the Traditional Costing:
The implementation of traditional costing method is easier and simpler for the entity. It is also
cost effective as it is less expensive to implement. Most of the companies prefer this method as
it is easy to understand and they have belief in its reliability (Molis, Jim. 2019). Further it is also