Comparing Traditional Costing Techniques with Throughput Accounting

Costing techniques are ‘cost down’ tools, which can refer to a range of methods. In the recent past, different costing techniques emerged as alternatives to traditional accounting methods in which indirect costs (e.g., lighting, heating, marketing) were allocated in proportion to an activity’s direct costs. This became unsatisfactory because two activities that absorb the same direct costs can use very different amounts of overhead. Thus, the need to have more meaningful costing techniques became apparent. Yet, the question still remains: must the old techniques be completely done away with? Apart from outlining the relevant concepts and applications, this course brings about an assessment of the relevance of traditional costing methods i.e., absorption, marginal and activity-based costing on the face of modern ones in particular throughput accounting. The essence of the assessment is to bring a case for or against using available management accounting theory and real-life examples.

Course Key Concepts: Absorption costing, Marginal costing, Activity-based costing (ABC), Key factor or limiting factor analysis, Theory of constraints (TOC), Throughput accounting (TA).