Cost Accounting Traditional Costing System

Question: Discuss about the Cost Accountingfor Traditional Costing System. Answer: Introduction: It is the costing technique which is used to allocate all the cost in separate department. Costing technique helps in providing all the required information to top management department and bifurcate all the cost in its relative departments. In this report ABC costing technique has been taken into consideration for the effective management of costing process in traditional costing system. Traditional Costing System: It is the one of the old system which is used by companies to allocate the cost in different departments. This technique is used to evaluate the average cost of overhead. This approach helps in bifurcation of cost in different departments and provides direct and indirect cost to the particular costing departments and evaluates cost in separate department by using cost working hours and labor engaged. (Garrison et al, 2010). Activity Based Costing: It is also ABC costing which is used in all the production houses activities consisted with manufacturing of products. It is used to assign the cost to each and every activity of production departments as per the different nature of cost and other elements it is used to provide exact cost of production and cost per unit. This technique is used to allocate cost to different production department. It is helpful in reducing the cost of production by reducing error chances and mistakes in process system. (Rasiah, 2011). This ABC technique is completely different from its traditional costing approach. Key Differences Between Traditional Costing Approach and ABC Costing Design There are several differences between traditional costing approach and ABC costing design Traditional costing allocates the cost as per the allocated overhead cost and ABC technique allocates cost as per the nature of total cost. Traditional costing technique is not used for dept information to allocate cost in different department but use only nature for the production allocation cost (Kaplan Anderson, 2013). In Traditional costing technique it is simple to allocate cost as per the rules whereas, in ABC technique it becomes hard and complex Traditional costing technique is concerned with considering very few cost elements whereas, in ABC costing several elements are taken into consideration before allocating cost Advantages and disadvantages: Advantages: This technique is easy to evaluate and determine total production cost in effective manner. It consumes less time and cost in its productions department. It provides bifurcation in products and costing department for particular products Helps in increment in overall profitability of organizations. It evaluate non productive factors of costing house Disadvantages: It does not provide correct result Accompanied with several errors Less information is used in this technique (Weygandt, Kimmel Kieso, 2015). It is very challenging and complex Conclusion: Traditional costing technique and ABC costing both are important to organizations. However, in order to reduce the mistakes and errors in present Traditional costing technique companies use ABC technique in its working department for cost allocation. Now in the end it would be concluded that ABC technique is far better technique for allocation of cost in different department by organizations. References: Garrison, R. H., Noreen, E. W., Brewer, P. C., McGowan, A. (2010). Managerial accounting.Issues in Accounting Education,25(4), 792-793. Kaplan, R., Anderson, S. R. (2013).Time-driven activity-based costing: a simpler and more powerful path to higher profits. Harvard business press. Rasiah, D. (2011). Why Activity Based Costing (ABC) is still tagging behind the traditional costing in Malaysia?.Journal of Applied Finance and Banking,1(1), 83. Weygandt, J. J., Kimmel, P. D., Kieso, D. E. (2015).Financial Managerial Accounting. John Wiley Sons.