Reasons to Use Traditional Costing

The video discusses the limitations of traditional costing methods, which often assume that all manufacturing overhead is proportional to production volume. This can lead to overcosting high-volume products and undercosting low-volume ones. Activity-Based Costing (ABC) is introduced as a more accurate alternative, using specific cost drivers to allocate costs more precisely. An example illustrates the discrepancies between the two methods, highlighting the potential for mispricing products. The video concludes that while traditional costing is simpler, ABC provides more detailed and accurate cost information.

What new insight or understanding did you gain from this video?