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.
More from this Section
- Accounts Receivable
Accounts Receivable are amounts that the clients owe to the service provider. “Account” ... - Multiple-step income statement
The multiple-step income statement is an income statement that shows several steps in ... - Current Liabilities
Current liabilities are obligations that a company expects to pay from existing current ... - Annual rate of return technique
Annual rate of return technique determines the profitability of a capital expenditure ... - Owner’s equity statement
Owner’s equity statement is a financial statement that summarizes the changes in owner’s ...