Activity-Based Costing (ABC)

Activity-Based Costing (ABC) is a method used by businesses to better understand the actual costs of their operations. Instead of simply dividing costs by overall production, ABC allocates costs based on specific activities that drive expenses, such as machine setups, employee hours, or material handling. This approach provides a more accurate picture of how resources are consumed, guiding companies in pricing, product development, and efficiency improvements. By identifying the true costs of individual products or services, businesses can make more informed decisions that enhance profitability and competitiveness.