Tuesday, December 11, 2007

100 words about Activity-Based Costing

Activity-Based Costing (ABC) is a methodology developed by Robert Kaplan and others (in the 1980s) for allocating costs to a product, service, customer, etc. Activities cause an organization to incur costs. Once the cost of the activities has been identified and each activity's cost has been determined, the cost of the activities is then allocated to the product, service, customer, etc. that required it. This methodology is more logical for allocating overhead than simply allocating costs based on machine hours or direct labor hours. Using ABC generated information to plan and control activities and processes drives organizations towards Activity-Based Management.

Adapted from: http://www.accountingcoach.com/accounting-terms/accounting-dictionary/index.html and http://en.wikipedia.org/w/index.php?title=Special:Cite&page=Activity-based_costing&id=145547335.

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