Activity based costing
From wikiMHEDA
Activity based costing (ABC) usually refers to a costing method that breaks down overhead costs into specific activities (cost drivers) in order to more accurately distribute the costs in product costing. Activity based costing has also been applied to customer and vendor management.[1]
Activity based costing is a technique that clarifies exactly how and where a company makes its profit. It assigns costs to the resources needed to carry out a particular activity. Indirect operating costs can be accounted for as well. This technique can result in a fuller financial picture, with a useful distinction between activities that add value and those that do not. Activity based costing can control costs, increase efficiency, and grow profits.
This powerful tool can assess an organization’s entire operation. ABC came about in the 1980s, while companies were trying to reduce costs and still improve their products and services.[2]
