Traditional cost allocation methods (such as plant-wide and departmental overhead rates) have been criticized for distorting cost information. Further, they do not assist management to cope with contemporary business challenges caused by global competition and advances in technology.

ABC has sometimes been portrayed as a means of constructing relevant and undistorted information that will assist management make better operational decisions.

Required:

Discuss whether you agree with the statements above. In your discussion, you should include the following:

a) a brief description of traditional overhead cost allocation methods;

b) strengths and weaknesses of traditional methods;

c) a brief description of the ABC cost allocation method;

d) strengths and weaknesses of ABC; and

e) conclude, whether you support the assertions above.