Activity-Based Costing vs Traditional Costing Essay

Activity-Based Costing vs Traditional Costing - Essay Example The other difference between the two methods is that activity based costing is accurate because it accounts for significant issues before it allocates cost to a given product. Contra wise the traditional costing is not accurate because it only considers specific products.Activity based costing demonstrates the cost of a product cross-subsidization challenge in cases where some products costs are higher and also when other products costs are lower as compared to the traditional method produced costing. The ABC regularly demonstrates that other products cost are highly costed while others are under coasted, hence resulting in crossing subsidization.Activity based is used to progress profitability through analyzing first the clients demand products, customers may require little or considerable support. Therefore, ABC helps in determining different amounts of customer’s activities be supported, and their costs for each client benefit and, as a result, deciding customer’s pr ofitability. However, the customers benefit is determined after the consideration of the customers support. Some of the ABC disadvantages are that implementation is expensive and time-consuming to establish ABC system. The system requires more resources like software that could be costly and consultants with the necessary expertise. The other disadvantage is data misinterpretation due to challenges in interpreting ABC data with often accounting information, which can be at times tricky, regarding decision-making.