What Is Traditional Costing?

Traditional Costing refers to the expenses incurred in the production process according to different cost calculation objects. As a kind of resource consumption, cost is the price paid by an enterprise to obtain a certain economic benefit, and it is finally compensated from the enterprise's income. With a certain income, the lower the cost to be compensated, the higher the economic efficiency of the enterprise. Therefore, for a long time, the guiding ideology of traditional cost management has focused on "saving a screw, a rope, an envelope", and taking the rise and fall of costs as an important basis for evaluating performance. The so-called traditional cost management refers to various cost management systems before Rubin Cooper and Robert Kaplan founded ABC (Activity-Based Costing) in 1984.

Traditional cost method

Traditional cost method refers to the method of corporate support cost allocation.The so-called support cost refers to the

Activity-based costing (ABC)

Comparison of Activity-Based Costing and Traditional Costing.

(1) Differences in indirect cost boundaries.

Under the traditional cost method,

Activity-based costing fundamentally addresses the shortcomings of traditional costing. Compared with traditional cost calculation, activity cost calculation has not only undergone quantitative changes but also qualitative changes in the allocation basis (cost driver) .It is no longer limited to a single quantity allocation basis used in traditional cost calculation, but a multivariate allocation basis; it It is not only limited to multiple allocation benchmarks, but also integrates financial variables and non-financial variables, with special emphasis on non-financial variables (the number of parts and components of the product, the number of adjustment preparations, the transportation distance, and the quality inspection time). This allocation basis combining quantitative and qualitative changes, financial variables and non-financial variables, can improve the correlation between the actual consumption cost of the product and enable the activity cost to provide "relatively accurate" product cost information.

However, the activity-based costing method does not meet the panacea for managing cost information needs. Similar to the current method, its value also depends on the environmental conditions.It should be kept in mind that the activity-based costing method still provides historical cost information. It is only indirectly related to management decision-making, so there must be additional conditions to play the role of decision-making. In addition, although the activity-based costing method greatly reduces the subjective allocation of product costs in the current method, it does not eliminate them fundamentally, that is, because the basic data of the activity-based costing method does not allocate the influence of arbitrariness. The core content of cost method, the choice of cost collection database and cost driver, can not be perfect. In summary, applying the theory of activity-based costing to practical operations may not completely avoid some cost-common problems, which will inevitably be artificially distributed. This is the need for activity-based costing to be continuously improved in the future development process. Office.