Final answer:
The ABC system allocates costs based on activities using specific cost drivers, whereas the traditional system uses broad cost pools and often allocates costs based on volume measures such as labor hours. Therefore, option A is correct in highlighting how the ABC system and the traditional system differ in their cost allocation approaches.
Step-by-step explanation:
The differences between the Activity-Based Costing (ABC) system and the traditional costing system using a two-stage allocation process are significant in how they allocate costs to products or services. The correct answer to this question is A, which states that the ABC system emphasizes cost drivers and allocates costs based on activities. In contrast, the traditional system generally uses broad cost pools and allocates costs based primarily on a single volume measure like labor hours or machine hours.
In the ABC system, costs are traced to activities such as ordering materials, setting up machines, or inspecting products, and then these costs are allocated to products based on the extent to which each product uses the activity. This can result in more accurate product costing, especially in companies where overhead costs are a significant portion of total costs and where products use resources non-proportionally. Meanwhile, the traditional system might not reflect the actual consumption of resources by different products, typically resulting in less accurate cost information. Options B, C, and D are incorrect as they either misstate the basis of allocation in the two systems or deny any difference between the two.