When you use tracing for Activity Based Costing, you assign specific, detailed resource costs directly to an activity each time it occurs. Tracing assumes that detailed cost information for an activity is available, accessible, or collectable in a cost effective way.
Tracing is more time and resource intensive and more costly. If you plan to use tracing as the method of assigning costs for Activity Based Costing you should be certain the additional costs of doing so are warranted. Also, Tracing is more naturally suited for deterministic processes such as manufacturing or document flow. Many high-level business processes do not lend themselves to tracing.
Benefits
•Directly links cause and effect
•Well suited for deterministic processes
•Well suited for process optimization, especially of low margin processes
•More accurate
Drawbacks
•More costly
•More time consuming
•Requires existence or acquisition of detailed cost data