A full absorption costing system would involve the assignment of both variable and fixed overhead costs to products. A traditional full absorption costing system typically uses a single volume related allocation base (or cost driver) to assign overheads to products. An activity based costing (ABC) system would use multiple allocation bases (or cost drivers), taking account of different categories of activities and related overhead costs such as unit, batch, product sustaining and facility sustaining.

REQUIRED:

(iii) Explain and discuss volume related allocation bases (or cost drivers), giving an example of one within a traditional costing system. Contrast this with the multiple allocation bases (or cost drivers) of an ABC system.

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