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A potential problem with this costing system is that costs may be distorted since only a single, volume-based cost driver is used. It should be noted that the costs of the programs might not be accurate because the consumption ratios of costs differs widely between programs. For instance, ?§general overhead?? is allocated on the basis of direct total labour cost, but not all staff devotes an equal proportion of their time to patient.
While on the other hand, the ABC system, overhead costs are assigned to products by following a two-stage procedure. The most significant activities are identified and categorized to activity cost pools first, and then allocating costs from each activity cost pool to each product line in proportion to the amount of the cost driver that is consumed by the product line...
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Common topics in this essay:
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