ACTIVITY-BASED COSTING VERSUSTRADITIONAL COSTING
Traditional Costing Systems
Allocates overhead using a single predeterminedrate.J
ob order costing: direct labor cost is assumedto be the relevant activity base.Process costing: machine hours is the relevantactivity base.
Assumption was satisfactory when direct labor wasa major portion of total manufacturing costs.
Wide acceptance of a high correlation betweendirect labor and overhead costs.