Activity-Based Costing

Paper Summary:

This paper considers the relatively new costing model called activity-based costing, developed in the 1980s and then refined through use by various organizations since. This approach is designed to focus attention on the causes behind indirect costs. The ABC system is directed largely at the issue of allocation, placing an emphasis on activities rather than traditional organizational departments as a way of isolating the causes of costs, or the factors that are most likely to cause or contribute to the accumulation of costs.

From the Paper:

"Activity Based Costing (ABC) was developed in the 1980s and has been refined through use by various organizations since. This approach is designed to focus attention on the causes behind indirect costs. The ABC system is directed largely at the issue of allocation, placing an emphasis on activities rather than traditional organizational departments as a way of isolating the causes of costs, or the factors that are most likely to cause or contribute to the accumulation of costs (Lewis, 1993, 12). The elements of this system can be applied to the working of a given business to help identify what may be driving costs upward. ABC can also be described as "a costing model that identifies the cost pools, or activity centers, in an organization and assigns costs to products and services (cost drivers) based on the number of events or transactions involved in the process of providing a product or..."

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