traditional costing system
- traditional costing system
Any of the systematic costing methods that prevailed before the rise of activity-based costing in the 1990s. Because they rely on an essentially arbitrary allocation of indirect costs, such systems do not give managers accurate product cost information, which means that accurate calculation of product profitability is not possible. The overhead rate in a traditional costing system would typically be calculated using direct labour hours, machine hours, or units. This could lead to accurate product costs when direct costs were high and indirect costs were low, as was the case 50 years ago; however, modern organizations typically have low direct costs and higher indirect costs.
The strengths of traditional costing systems are:
• simplicity – the calculation of overhead rates is relatively straightforward;
• they are widely understood in the business;
• they are not expensive to operate;
• until the late 1980s they were seen as fairly accurate;
• they are still being used after many decades.
The weaknesses of traditional costing systems are:
• their inability to give accurate product costs in multiproduct companies;
• their failure to analyse non-manufacturing costs.
Accounting dictionary.
2014.
Look at other dictionaries:
traditional costing system — Any of the systematic costing methods that prevailed before the rise of activity based costing in the 1990s. Because they rely on an essentially arbitrary allocation of indirect costs, such systems do not give managers accurate product cost… … Big dictionary of business and management
Backflush Costing — A product costing system generally used in a just in time inventory environment. Backflush costing delays the costing process until the production of goods is completed. Costs are then “flushed” back at the end of the production run… … Investment dictionary
activity-based costing — ABC; activity costing A system of costing proposed by Professors Johnson and Kaplan in their book Relevance Lost: The Rise and Fall of Management Accounting (1987), in which they questioned accounting techniques based on absorption costing Their… … Big dictionary of business and management
activity-based costing — ABC method; = activity costing A system of cost allocation proposed by Professors Johnson and Kaplan in their book Relevance Lost: The Rise and Fall of Management Accounting (1987), in which they questioned accounting techniques based on… … Accounting dictionary
Health care system — A health care system is the organization of people, institutions, and resources to deliver health care services to meet the health needs of target populations. There is a wide variety of health care systems around the world, with as many… … Wikipedia
Bicycle sharing system — Vélo v in Lyon … Wikipedia
List of Sega arcade system boards — The following is a list of arcade system boards released by Sega. Contents 1 Sega G80 1.1 G80 Specifications 2 Sega System 1 2.1 System 1 Specifications … Wikipedia
Activity-Based Costing - ABC — An accounting method that identifies the activities that a firm performs, and then assigns indirect costs to products. An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this… … Investment dictionary
standard costing — A system of cost ascertainment and control in which predetermined standard costs and income for products and operations are set and periodically compared with actual costs incurred and income generated in order to establish any variances.… … Accounting dictionary
standard costing — A system of cost ascertainment and control in which predetermined standard costs and income for products and operations are set and periodically compared with actual costs incurred and income generated in order to establish any variances Standard … Big dictionary of business and management
