BNET Business Dictionary
Business Definition for: Activity Based Costing
- a method of calculating the cost of a business by focusing on the actual cost of activities, thereby producing an estimate of the cost of individual products or services.
Example: An ABC cost-accounting system requires three preliminary steps: converting to an accrual method of accounting; defining cost centers and cost allocation; and determining process and procedure costs.
Businesses have traditionally relied on the cash basis of accounting, which recognizes income when received and expenses when paid. ABC's foundation is the accrual-basis income statement. The numbers this statement presents are assigned to the various procedures performed during a given period. Cost centers are a company's identifiable products and services, but also include specific and detailed tasks within these broader activities. Defining cost centers will of course vary by business and method of operation. What is critical to ABC is the inclusion of all activities and all resources.
Once cost centers are identified, management teams can begin studying the activities each one engages in and allocating the expenses each one incurs, including the cost of employee services.
The most appropriate method is developed from time studies and direct expense allocation. Management teams who choose this method will need to devote several months to data collection in order to generate sufficient information to establish the personnel components of each activity's total cost.
Time studies establish the average amount of time required to complete each task, plus best- and worst-case performances. Only those resources actually used are factored into the cost computation; unused resources are reported separately. These studies can also advise management teams how best to monitor and allocate expenses that might otherwise be expressed as part of general overheads, or go undetected altogether.
- Abbr. ABC
Additional Resources
- Understanding Activity Based Costing
- Activity based costing ABC is an accounting technique that aims to clarify exactly how and where a company makes its profit.ABC assigns costs to all the resources needed to carry out a particular business activity. It also accounts for indirect ("soft") operating costs. The result is a fuller financial picture...
- Articles 2007-07-16
- Activity-Based Costing
- This presentation provides detail information on one of the most important strategic management tool known as Activity-Based Management. It enumerates one of its basic elements known as activity-based costing. Activity Based Costing is a modeling technique where costs are expressed in terms of Resources, Activities, and Products. It states that...
- Presentations 2003-01-01
- ABC basics.(activity-based costing)
- Adopting activity-based costing ABC can bring wider benefits to a company, and often product costing is not the main benefit which results from introducing activity-based management. ABC concentrates on analysing overhead costs within a business, and itAdopting activity-based costing ABC can bring wider benefits to a company, and often product...
- Research articles 1996-06-01
- Introduction To: Activity Based Management, Activity Based Costing, Activity Based Budgeting Information
- This paper gives an insight into the three main strategic management tools known as: 1. Activity Based Management, 2. Activity Based Costing, and 3. Activity Based Budgeting information. All of these three play important role in developing a successful strategy. Activity based management focuses on managing activities/business processes to achieve...
- White papers 2003-01-01
- Activity Based Costing In The Information Age
- Activity Based Costing ABC is the method of measuring the cost and performance of activities and cost objects. The activity based model bridges the gap between the financial system and the various operational systems of the organization. The paper outlines the difference between ABC and traditional costing method. The simple...
- White papers 2003-01-01
- Activity Based Costing at UPS
- This article mainly discusses a case of UPS who adopted Activity Based Costing. Activity Based Costing at UPS is a cross functional discipline requiring an understanding of work activities. Its focus is to identify the key activities within a function or process, measure the cost associated with the activities and...
- White papers 2003-01-01
- Activity-Based Costing And Activity-Based Management
- Activity Based Costing ABC system traces cost incurred to the activities involved therein. It explores the relationship between activities and costs. ABC refines costing systems by focusing on individual activities as the fundamental cost object. It assigns costs to cost objects based on the activities undertaken to produce each product...
- Presentations 2003-01-01
- The A to Z of ABC Dictionaries: Activity Based Costing
- Activity-based costing initiatives can easily go awry if everyone isn't using commonly understood terms. But creating a reference guide requires arriving at a consensus on what each definition should be. The paper says that language of business is imprecise. What one company defines as gross revenues another may call gross...
- White papers 1999-12-01
- Activity-Based Costing: Better Costing For Better Decisions
- Activity Based Costing ABC system traces cost incurred to the activities involved therein. It explores the relationship between activities and costs. ABC refines costing systems by focusing on individual activities as the fundamental cost object. It assigns costs to cost objects based on the activities undertaken to produce each product...
- Presentations 2003-01-01
- As easy as ABC: much has been written about the advantages of activity-based costing, but how complicated is it to implement within your business? John Porteous shares his experience at Barclays. (Feature activity-based costing).
- Barclays Service Provision SP was formed in 1999, following a strategic review of IT and operations within the Barclays banking group. When this substantial business division recently implemented activity-based costing ABC, it had to tackle speci Barclays Service Provision SP was formed in 1999, following a...
- Research articles 2001-11-01
- More Complex, More Robust: Activity-based costing systems are harnessing the internet and adding new functionality, giving companies more horsepower than ever. (Activity-based Costing).
- ABC isn't what it used to be. Activity-based costing and its offshoots -- activity-based management and activity-based budgeting -- are more sophisticated than ever, in part because of Internet-based tools that allow managers to share information across the entire corporation. Managers can now...
- Research articles 2002-01-01
- Activity-Based Costing
- Activity Based Costing ABC refines costing systems by focusing on individual activities as the fundamental cost object. It assigns costs to cost objects based on the activities undertaken to produce each product or service. Such a costing method improves cost measurement by organizing information around activities. According to the paper,...
- Presentations 2003-01-01
- Multi-dimensional databases are good for ABC. (activity-based costing) (includes related articles)
- Many companies seeking to undertake activity-based management and activity-based costing are often hindered by their existing management software systems that are unable to build complex cost models. However, traditional multi-dimensional databases are abMany companies seeking to undertake activity-based management and activity-based costing are often hindered by their existing management software...
- Research articles 1995-09-01
- ABC is a firm favourite with high street banks. (activity based costing becomes popular in UK banking sector)
- Activity based costing ABC has become popular in the UK banking sector and is seen as more useful than standard costing since the financial services industry uses employees, equipment and office space. ABC has tended to be introduced by finance departmeActivity based costing ABC has become popular in the UK...
- Research articles 1995-01-01
- ACTIVITY BASED COSTING: lessons learned implementing ABC.
- Strategies used in the process of implementing activity-based costing ABC at corporate level and the benefits of this costing system for corporate operations are discussed. Top management 's use of strategies such as value-added analysis and bottleneck Strategies used in the process of implementing activity-based costing ABC at corporate level...
- Research articles 1999-05-01
- Understanding Activity Based Costing
- Understanding Activity Based CostingRE: Understanding Activity Based Costingi need to know how to implement acrivity based costing in pharmaceuticals company
- Discussion threads 2008-08-05
- Activity-Based Costing and the Enterprise Cost Management Solution
- Although many manufacturing and service companies have achieved numerous successes with initiatives in activity-based costing in recent years, many of these efforts are unsustained or have not achieved their objectives over the long term. Among the reasons for this has been the dependence on point-based technology solutions which have proven...
- White papers
- Activity-Based Costing and Predatory Pricing
- The article emphasises on activity based costing ABC. The assignment of indirect costs in a traditional costing system can lead to product-cost subsidization. This is where excessive costs are charged to high-volume products and insufficient costs are charged to low-volume products. The result can lead to increased consumer demand for...
- White papers 2003-01-01
- Activity Based Costing Best Practices
- Applications of activity-based costing ABC have significantly increased in logistics due to its ability to provide greater insight into the costs of performing specific logistics services and their impact on supply chain performance and costs. The applications of activity-based costing differ in their focus and in complexity. The relatively recent...
- White papers 2003-01-01
- An Overview Of Cost Management (CM)/Activity Based Costing (ABC) For PEO Business Managers
- Activity Based Costing ABC is a methodology, which makes the costing very process and activity centric. In ABC, resources are assigned to activities which, in turn, are assigned to cost objectives based on their use. Activity Based Management ABM approach seeks to achieve customer value through continuos management of activities....
- Presentations 2002-11-05
