The three advantages of activity-based costing over traditional volume-based allocation methods are that activity based costing is more accurate product costing, it is more effective cost control way and it has better focus on the important factors for decision making.
Activity-based costing increases the understanding of cost drivers as well as overheads, and makes non-value adding and costly activities more visible, which allows managers to reduce or eliminate them eventually.
Activity-based costing gives you a more realistic and accurate cost of production for several items, allows you to evaluate the efficiency of certain products and improve them accordingly and also gives you more accurate data for profit margins.
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