Traditional Costing Relevance

Traditional Costing, otherwise known as Volume-Based costing allocated factory overhead costs based
on the volume of production resources used. This is usually applied to cost drivers such as labour hours
or machine hours. Today, where accuracy of data holds the key to the success and development of many
Companies, the relevance of traditional costing method is often question. According to me, traditional
costing is quite relevant but in different aspects of the business. For instance, if a business is looking to
produce external reports, traditional costing would be appropriate as it is easier to implement and
allows users to easily understand the report. Furthermore, traditional costing is useful for companies
with a lower overhead cost compared to its direct cost of production. It is best used for manufacturers
that produce a few products. The implementation of traditional costing is inexpensive and therefore
would be appropriate for these types of businesses. However, there is a different type of costing that
provides more accurate cost information than traditional costing which is known to be Activity-Based
Costing (ABC). But this does not completely void the relevance of traditional costing today. Thus the
decision of which costing method to use is solely based on the information needs of the users. Managers
will need accurate information to make profitable decisions therefore ABC would be used. External
reporting would need traditional costing as implementing an expensive costing system would be
impractical.