The chief executive officer (CEO) of your company recently returned from a luncheon meeting where activity-based costing was presented and discussed. Though her background is not in accounting, she has worked for the company for 15 years and is thoroughly familiar with its operations. Her impression of the presentation about ABC was that it was just another way of dividing up total overhead cost and that the total would still be the same “no matter how you sliced it.”

Required
Write a memorandum to the CEO, no more than one page, explaining how ABC is different from traditional volume-based costing methods. Also, identify its advantages and disadvantages vis-à-vis traditional methods. Be sure it is written to be understandable to someone who is not an accountant.