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What is the difference between ABC and Traditional Costing?

Asked by R. Jones, Last updated: Sep 16, 2020

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R. Jones

R. Jones

Curious about the World

R. Jones
R. Jones, Student, Postgraduate, Calgary

Answered Apr 14, 2020

ABC is the short form of Activity Based Costing. ABC and traditional costing are two types of accounting systems designed to help companies know the cost of their operations. The major difference between the two lies in the complexity of each method. Traditional costing is considered to be very simple to use, and that makes it simpler to use compared to activity-based costing.

Also, since traditional costing is very easy to use, it does not cost too much. Activity-based costing, on the other hand, is a little bit difficult, and it is very expensive to use, however, it will give you accurate information compared to what you will get if you use traditional costing.

When the overheads of a particular company are high compared to the direct costs of production, activity-based costing is used. But in the event that the overhead of a company is low compared to the costs of production, then traditional costing is used.

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