what do you mean by activity based costing? how is it an improvement over the traditional cost accounting system? discuss with the help of suitable example?
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The activity-based costing (ABC) system is a method of accounting you can use to find the total cost of activities necessary to make a product. ... And, the activity-based costing process shows you which overhead costs you might be able to cut back on. For example, you make soap.
Traditional costing adds an average overhead rate to the direct costs of manufacturing products and is best used when the overhead of a company is low compared to the direct costs of production. Activity-based costing identifies all of the specific overhead operations related to the manufacture of each product
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