Activity-Based Costing (ABC) Definition | Becker

Accounting Dictionary

Activity-Based Costing (ABC)

 

  1. Activity-based costing is a costing system that divides production into activities where costs are accumulated into multiple cost pools and allocated to the product based on the level of activities (defined by cost drivers) demanded by the product. Activity-based costing is normally used as a supplement to, rather than a replacement for, a firm's absorption costing system. Activity?based costing normally allocates costs in addition to normal manufacturing costs, and the cost drivers are often nonfinancial activities. Absorption costing is frequently contrasted with traditional cost allocation, a method that assumes a single cost pool and a single cost driver. See also variable costing and absorption costing and cost pool. A costing system that (a) identifies the relationship between the incurrence of cost and activities; (b) determines the underlying "driver" of the activities; (c) establishes cost pools related to individual "drivers"; (d) develops costing rates; and (e) applies cost to product on the basis of resources consumed (drivers).

 

Related Terms:

Variable Costing [BAR]Absorption Costing [BAR]Cost Pool [BAR]Back to Dictionary

Now Leaving Becker.com

You are leaving the Becker.com website. Once you click “continue,” you will be brought to a third-party website. Please be aware, the privacy policy may differ on the third-party website. Adtalem Global Education is not responsible for the security, contents and accuracy of any information provided on the third-party website. Note that the website may still be a third-party website even the format is similar to the Becker.com website.

Continue