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

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  2. Extended Normal Costing

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

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  4. Activity Center

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  5. Variable Cost

    A corporate expense that varies with production output. Variable ...
  6. Activity-Based Management - ABM

    A procedure that originated in the 1980s for analyzing the processes ...
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