... but reduce their profit margin from the targeted 35% to only 22%. The key difference between the three costing systems is how overhead costs are allocated. Under the traditional cost accounting method, overhead costs are applied to each product at a uniform rate. The more modern or "revised" cost accounting system (Exhibit 4 of the Destin case notes) separates material related overhead from the balance of manufacturing overhead costs. This method provides a little more detail than the traditional method, but still results in some distortion of true product costs. So why should Destin use the ABC method ? The most important reason for using ABC accounting is that it provides the most accurate cost information for each product. By focusing on the number of transactions in each of five different categories (receiving, material handling, packing and shipping, engineering and maintenance), Destin can more accurately allocate overhead costs to each product. To ...

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