1993, p. 35). This per-unit cost is assigned to each unit produced; thus a factory that produces three different products in varying quantities would use the $3.75 figure to allocate costs.
However, different products may require different activities even though they are being produced in the same plant. Some products may require extensive set-up, while others may require more packaging time. In the service industry, some service calls require more time than others, while other service calls require the time of an expert in a particular field. Traditional costing does not account for these differences, but allocates cost without regard to product differentiation.
Activity-based costing, on the other hand, recognizes these differences and builds them into the cost basis. For example, if a product requires additional set-up, that is taken into account with ABC. Similarly, service companies can allocate costs based on the type of service required by various types of customers or type of service call. From this standpoint, ABC offers additional informati
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