What is the traditional method used in cost accounting?

The traditional method of cost accounting refers to the allocation of manufacturing overhead costs to the products manufactured. The traditional method (also known as the conventional method) assigns or allocates the factory's indirect costs to the items manufactured on the basis of volume such as the number of units produced, the direct labor hours, or the production machine hours. We will use machine hours in our discussion.

By using only machine hours to allocate the manufacturing overhead to products, it is implying that the machine hours are the underlying cause of the factory overhead. Traditionally, that may have been reasonable or at least sufficient for the company's external financial statements. However, in recent decades the manufacturing overhead has been driven or caused by many other factors. For example, some customers are likely to demand additional manufacturing operations for their diverse products. Other customers simply want great quantities of uniform products.

If a manufacturer wants to know the true cost to produce specific products for specific customers, the traditional method of cost accounting is inadequate. Activity based costing (ABC) was developed to overcome the shortcomings of the traditional method. Instead of just one cost driver such as machine hours, ABC will use many cost drivers to allocate a manufacturer's indirect costs. A few of the cost drivers that would be used under ABC include the number of machine setups, the pounds of material purchased or used, the number of engineering change orders, the number of machine hours, and so on.

In the retail we used the Movement of Weighted average

The conventional strategy for cost bookkeeping alludes to the assignment of assembling overhead expenses to the items produced. The customary strategy (otherwise called the traditional technique) appoints or allots the industrial facility's roundabout expenses to the things fabricated based on volume, for example, the quantity of units delivered, the immediate work hours, or the generation machine hours. We will utilize machine hours in our dialog. 

By utilizing just machine hours to dispense the assembling overhead to items, it is inferring that the machine hours are the basic reason for the industrial facility overhead. Customarily, that may have been sensible or if nothing else adequate for the organization's outer monetary explanations. Be that as it may, in late decades the assembling overhead has been driven or caused by numerous different components. For instance, a few clients are probably going to request extra assembling activities for their differing items. Different clients essentially need incredible amounts of uniform items. 

In the event that a maker needs to know the genuine cost to deliver particular items for particular clients, the customary technique for cost bookkeeping is lacking. Action based costing (ABC) was produced to defeat the weaknesses of the customary strategy. Rather than only one cost driver, for example, machine hours, ABC will utilize numerous cost drivers to designate a producer's backhanded expenses. A couple of the cost drivers that would be utilized under ABC incorporate the quantity of machine setups, the pounds of material bought or utilized, the quantity of building change arranges, the quantity of machine hours, et cetera.

CONTROLLING COST DURING THE JOB THAT WILL NOT EFFECT COMPANY BUDGET

 The traditional method (also known as the conventional method) assigns or allocates the factory's indirect costs to the items manufactured on the basis of volume such as the number of units produced, the direct labor hours, or the production machine hours.

 Activity based costing (ABC) was developed to overcome the shortcomings of the traditional method. Instead of just one cost driver such as machine hours, ABC will use many cost drivers to allocate a manufacturer's indirect costs.