There are two main costing methods that company may use, absorption costing and Activity established priced at. Absorption costing and Activity established priced at (ABC) are two similar systems that are being used to assign indirect costs to cost items. Absorption costing is also called 'traditional costing'; it is more simplistic and uses arbitrary allocation. On the other hand, ABC is more superior and uses cause-and-effect allocation. This report will deal with the different definitions, the history, the advantages and down sides of absorption and ABC systems. Then finial a advice which system is way better suited for this company. This company needs either of the two costing system because they are useful during planning and budgeting. Furthermore getting the systems set up allows overheads to be recharged to services.