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Topic: Business
Number of pages / Number of words: 9 / 2336
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In ABC, a measure of the relevant activity volume is used to trace each type of costs, rather than exclusively using measurements (or allocation bases) related to the volume of the products or services produced. Using this logic, ABC tends to solve the problems created by traditional cost or inventory valuation methods...


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Using this logic, ABC tends to solve the problems created by traditional cost or inventory valuation methods.

Example: the difference between product costs when using Traditional and ABC

Company A manufactures two products:

Product H - a high volume product, and

Product L - a low volume product.

Information regarding the production and costs of activities is as follows:

Product L Product H

Machine hours per unit 2 2

Labour hours per unit 4 4

Annual output (units) 1 000 10 000

Total machine hours 2 000 20 000

Total labour hours 4 000 40 000

No...


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