According to Zelman, McCue, Glick, and Thomas (2014), activity-based costing (ABC) requires increased attention as compared to traditional, top-down cost-allocation methods. The assumption for ABC is that activities consume resources and products consume activities. Equally, the assumption is that if you can control activities or processes, then you can also control costs. The supposition is that if you can measure the resources an activity consumes, then you can provide a more accurate picture of costs as compared to the traditional, top-down cost-allocation method (Zelman et al., 2014).

Questions:

Describe traditional cost allocation.

Discuss costing terminology (direct costs and indirect costs) and cost drivers.

Identify the steps in ABC. Discuss the differences between the ABC method and traditional cost allocation. What are the pros and cons of both ABC and traditional cost allocation?

In your opinion, is the ABC method better than traditional cost-allocation methods? Why or why not?