Traditional Cost Accounting
A traditional cost accounting system assumes that all costs can be classified as fixed or variable with respect to changes in the units or volume of product produced. Thus, units of product or other drivers highly correlated with units produced, such as direct labor hours and machine hours, are the only drivers assumed to be of importance. These unit- or volume- based drivers are used to assign production costs to products. A cost accounting system that uses only unit-based activity drivers to assign costs to cost object is called a traditional cost system. Since unit-based activity drivers usually are not the only drivers that explain causal relationships, much of the product cost assignment activity must be classified as allocation (recall that allocation is cost assignment based on assumed linkages or convenience). Therefore, traditional cost accounting systems tend to be allocation intensive.