Activity-Based Costing - ABC


DEFINITION of 'Activity-Based Costing - ABC'

An accounting method that identifies the activities that a firm performs, and then assigns indirect costs to products. An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods.


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BREAKING DOWN 'Activity-Based Costing - ABC'

Some costs are difficult to assign through this method of cost accounting. Indirect costs, such as management and office staff salaries are sometimes difficult to assign to a particular product produced. For this reason, this method has found its niche in the manufacturing sector.

  1. Activity Sequence-Sensitive

    A calculation used in activity-based costing for determining ...
  2. Extended Normal Costing

    In managerial accounting, a method of tracking production costs ...
  3. Backflush Costing

    A product costing system generally used in a just-in-time inventory ...
  4. Activity Center

    A pool of activity costs associated with particular processes ...
  5. Fixed Cost

    A cost that does not change with an increase or decrease in the ...
  6. Variable Cost

    A corporate expense that varies with production output. Variable ...
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