ALLOCATION BASE USED FOR NON-
Per Tax Job
Current sing cost-driver system
ABC system with multiple cost drivers
(Current less ABC)
Refer to Appendix I for calculations
2. Traditional cost accounting methods is different from the activity-based cost (ABC) methods on
many levels. As a result of their differences, the average costs per job that we calculated, using both
methods differed. For the average cost per A&A job, the traditional method had a greater cost of
$38,770.17 per job compared to the ABC method’s cost of $34,557.57 per job, making a difference
of $4,212.60 per job. For the Tax jobs, the traditional method’s cost of (-) $10260.44 compared to
the ABC method’s cost of $11,999.31 per job resulted in a negative difference of $1,738.87 per job.
Lastly, the average cost per V&F job also had a negative difference of (-) $12.83 per job.
There are three main reasons for these differences to have occurred. One being that the
traditional costing allocates all manufacturing overhead to products. ABC costing only assigns
manufacturing overhead costs consumed by those products.
For instance, you can see from the
calculations sheet that all the overhead is lumped under the “non-job related costs” in the traditional
system, unlike in the ABC system where the manufacturing overhead is allocated to the different
cost pools (CPE, Administrative, Client Development, and Unassigned) and used to calculate
different activity rates which are then used to calculate the overhead more specifically for the three
Another reason that these differences occurred is due to the fact that traditional costing
allocates all manufacturing overhead costs using a volume-related allocation base. On the other
hand, ABC costing uses non-volume related allocation bases. Lastly, the traditional costing
disregards selling and administrative expense because they are assumed to be period expenses.