Final answer:
Activity-based costing (ABC) and traditional costing differ in the way costs are allocated to products. ABC provides more accurate and detailed information for management decision making and profitability analysis.
Step-by-step explanation:
Activity-based costing (ABC) and traditional costing are two methods used to allocate costs to products or services. Traditional costing uses a single allocation base, such as direct labor hours or machine hours, to assign costs to products. ABC, on the other hand, recognizes that products consume different activities and assigns costs based on the activities that drive the costs.
The value of ABC for management profitability analysis and decision making is that it provides more accurate and detailed information about the costs of individual products or services. By understanding the costs of each activity, management can make better decisions about pricing, product mix, and resource allocation. ABC also helps identify non-value-added activities that can be eliminated to improve efficiency and profitability.
In conclusion, the main difference between traditional costing and ABC is the way costs are assigned to products or services. ABC provides a more detailed and accurate view of costs and can help management make better decisions for profitability analysis and decision making.