How does activity-based costing differ from traditional costing methods, and what are its advantages?

Activity-Based Costing (ABC) vs. Traditional Costing:

Activity-Based Costing (ABC) differs from traditional costing methods by allocating indirect costs based on the activities and resources used to produce goods or services rather than using broad allocation bases like direct labor hours or machine hours. ABC provides a more accurate and detailed picture of cost drivers, allowing businesses to better understand the true cost of products and services. Its advantages include improved cost accuracy, better decision-making, and enhanced cost management by identifying areas for cost reduction and process improvement based on activity consumption.