Answer Posted / amit kapoor

Activity based costing (ABC) is a more sophisticated and
logical way to allocate a company’s costs to its products
(or other objects) than traditional costing. (Traditional
costing might allocate all of the overhead costs solely on
the basis of machine hours.) Activity based costing
identifies the many activities that actually cause the
company to consume resources. Next, it calculates the cost
of each of the activities. Then it assigns each activity’s
cost only to the products that actually use the activities.
Obviously this is important when some products require few
activities, and other products require many activities.

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