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The difference between volume based and activity-based costing, explained by our business accountants in Sydney

Volume based costing is the traditional form of costing that our business accountants in Sydney have witnessed when dealing with most clients. However, our small business accountants in Sydney have also come across activity-based costing, in which they will describe in further detail below:

Volume Based Costing
Volume-based allocation methods work best if the manufacturing environment includes mostly unit-level costs (costs that vary with every unit produced or the volume of production).

Activity Based Costing
Activity based costing (ABC) provided an alternative to traditional costing methods by allocating overhead costs on the basis of activities that drive costs. Our professionals in small business accounting in Sydney find this method is effective in automated and diverse product environments.

Our small business accountants in Zetland see activity-based costing as a superior form of overhead allocation because it links all overhead costs to products using specific activity drivers. Activity based costing also uses more specific overhead driver costs, not just one driver. In conclusion, activity-based costing provides a more precise allocation of over head costs in comparison to volume-based costing.

For more information about volume-based and activity-based costing, please contact our business accountants in Sydney today.

 
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