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In today's competitive economy, the cost structure is much more complex than that of the past, and there is a lot less room for error than that allowed in the more laid back economy of the past. Today's costing concerns arise from the growing disparity between d ....

Middle of Essay
.... burdened rate (direct labor hours is a good example). This was acceptable when overhead was small and direct costs were high. But in today’s automated factory, this can lead to disaster. Conventional systems report inaccurate product costs--often grossly inaccurate. Management, in turn, makes strategic decisions based on these inaccurate product costs. Traditional cost systems assume all overhead activities are consumed equally by all products relative to volume produced. Further, all costs are allocated to products because the system assumes that current output drives current overhead costs. Overhead costs are allocated to products on the basis ....