This episode of our podcast compares and contrasts traditional and activity-based costing methods. Traditional costing allocates overhead based on a single cost driver, often direct labor hours, while activity-based costing (ABC) uses multiple cost drivers to more accurately allocate overhead costs to products. The text explains the process of implementing ABC, including identifying cost pools and drivers, and analyzes the impact of both costing methods on product costs and profitability. Finally, it discusses variable and absorption costing, highlighting their differences and when each is most appropriate.

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