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ACTIVITY BASED COST ACCOUNTING VERSUS TRADITIONAL COST ACCOUNTING- A COMPARATIVE ANALYSIS

Ali Faghih Habibi, Kamal Javanmardi, Rohullah Tavakoli, Amir Sasan Mozaffari Nejad

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Abstract

Activity based costing (ABC) which has become an important aspect of manufacturing and service organizations can be defined as a methodology that measures the cost and performance of activities, resources and cost objects. It can be considered as an alternative paradigm to traditional cost - based accounting systems. The objective of this paper is to illustrate the application of ABC method and to compare the results of ABC with traditional costing methods. The results of the application highlight the weak nesses of traditional costing methods and a 5 curve is used to identify the under costing and over costing of products of the firm.

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What this paper is about

Activity based costing (ABC) which has become an important aspect of manufacturing and service organizations can be defined as a methodology that measures the cost and performance of activities, resources and cost objects. It can be considered as an alternative paradigm to traditional cost - based accounting systems. The objective of this paper is to illustrate the application of ABC method and to compare the results of ABC with traditional costing methods. The results of the application highlight the weak nesses of traditional costing methods and a 5 curve is used to identify the under costing and over costing of products of the firm.

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Available abstract

Activity based costing (ABC) which has become an important aspect of manufacturing and service organizations can be defined as a methodology that measures the cost and performance of activities, resources and cost objects. It can be considered as an alternative paradigm to traditional cost - based accounting systems. The objective of this paper is to illustrate the application of ABC method and to compare the results of ABC with traditional costing methods. The results of the application highlight the weak nesses of traditional costing methods and a 5 curve is used to identify the under costing and over costing of products of the firm.

Key concepts: Activity-based costing, Cost accounting, Cost–volume–profit analysis, Total absorption costing, Target costing, Management accounting, Cost driver, Product cost management

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