In cost accounting, direct costs are easily and economically traced to cost object. On the other hand, overheads cannot be economically traced to cost object. Therefore, allocating overheads is considered as the main problem in cost accounting, whereas traditional methods such asSingle plantwide factory overhead rate methodandMultiple production department factory overhead rate methodhave been used. In addition, developed methods such asActivity based costing method (ABC)has been used to enhance the allocation of overheads to cost object.

Students are required to criticize both traditional methods and explain how isABCbeing applied to a manufacturing company? What are the disadvantages of theABCmethod?