Definition

Activity-based costing (ABC)

Activity-based costing (ABC) is a method of allocating overhead based on each product’s use of activities in making the product.

In order to obtain more accurate product costs, many companies now allocate overhead using activity-based costing (ABC). For example, companies can keep track of their cost of setting up machines for each batch of a production process. Then companies can allocate part of the total set-up cost to a particular product based on the number of set-ups that product required.

Activity-based costing is beneficial because it results in more accurate product costing and in more scrutiny of all activities in the value chain.

Share it:  Cite

More from this Section

  • Capital leases
    Capital lease is a contractual arrangement that transfers substantially all the benefits ...
  • Paid-in capital
    Paid-in capital is the total amount of cash and other assets paid in to the corporation ...
  • Chain store
    Chain store refers one of two or more similar stores owned by the same company, usually ...
  • Cost method
    Cost method is an accounting method in which the investment in common stock is recorded ...
  • Operating expenses
    Operating expenses is a category expenses of a merchandising company that are expenses ...