When comparing traditional product costing and activity-based costing (ABC) methods, which kind(s) of costs are allocated to products in a similar manner and which kind(s) are allocated to products in a different manner? Explain your answers
Both traditional and ABC costing methods allocate the cost of direct materials and direct labor in a similar manner since both can be traced to specific products or jobs fairly easily. However, traditional and ABC costing methods allocate overhead differently.
Traditional costing is more volume-based where overhead tends to be allocated based on the number of units produced. ABC costing, on the other hand, allocates overhead based on the activities that drive those overhead costs.
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