Lets consider costing for a service organization. Assume you are a consultant for a law firm. The firm currently has no traditional cost accounting system in place. A partner has taken a course in management accounting and wants to understand traditional and activity based costing. Explain to the partner how a traditional overhead rate is determined and what would be a good denominator activity to use as the base. Also explain what is meant by activity-based costing and how it would might lead to better decisions for the firm.

If you have worked for a company that employed a cost accounting system, share your personal experiences.