Cost Accounting vs. Activity-Based Costing (ABC): A Comprehensive Comparison

Cost Accounting (CA) vs. Activity-Based Costing (ABC): A Comparison

Input Analysis

• CA: Focuses on direct and indirect costs, with special attention to accumulation costs.
• ABC: Analyzes traceable and non-traceable costs, emphasizing hidden costs.

Allocation Analysis

• CA: Categorizes costs by function, based on delegation and accountability. Support-center costs are allocated to main centers. Activity units are selected based on correlation.
• ABC: Categorizes costs by activity (processes), focusing on value chain control. Support activities are minimized. Drivers are selected based on causality.

Cost Object Analysis

• Both CA and ABC analyze production and final costs, cost-volume-profit, product cost at different completion stages, and contribution to value.

Base Technique

• CA: Relies on cost calculations.
• ABC: Employs activity analysis.

Time Span

• CA: Short-term focused.
• ABC: Long-term perspective.

Objective

• CA: Primarily for accounting and financial reporting.
• ABC: Supports strategic management decisions.

3 Analyses of Cost Accounting

1st Analysis: Cost Definition and Classification

• Scope: Determine product costs (necessary for production) and period costs (all other costs).
• Base: Utilize historical, forecasted, and standard costs.

2nd Analysis: Cost Imputation Route

• Establish the relationship between costs and products based on functions (purchasing, production, logistics).
• Identify cost generation points and cost drivers for each section.

3rd Analysis: Section-Product Relationship

• Define the cost object.
• Determine the demand for services from cost sections by each cost object.

Objectives of Management Accounting

1. Represent business activity in economic terms, enabling forecasting and simulation.
2. Measure and value resource consumption for each cost entity.
3. Calculate analytical margin and profit.
4. Coordinate company objectives across levels and assign responsibilities.
5. Support communication of performance across different company levels.

Horngren's Five-Step Method

1. Determine the number of physical units produced.
2. Convert physical units produced into equivalent-production units.
3. Accumulate costs assigned to units produced.
4. Calculate the unit cost of equivalent-production units.
5. Calculate the total production cost for the period.