Activity-Based Costing - ABC

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  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. Activity-Based Management - ABM

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

    A corporate expense that varies with production output. Variable ...
Related Articles
  1. Fundamental Analysis

    Analyze Cash Flow The Easy Way

    Find out how to analyze the way a company spends its money to determine whether there will be any money left for investors.
  2. Retirement

    The Essentials Of Corporate Cash Flow

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself.
  3. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  4. Investing

    When should a company recognize revenues on its books?

    When a company makes revenues from its operations, it must be recorded in the general ledger and then reported on the income statement every reporting period. According to generally accepted ...
  5. Professionals

    Financial History: The Evolution Of Accounting

    Follow accounting from its roots in ancient times to the profession we now depend on.
  6. Investing

    What is the difference between IAS and GAAP?

    To answer this question, we must first define what IAS and GAAP are, in order to get a better grasp of the function they serve in the world of accounting.The acronym "IAS" stands for International ...
  7. Retirement

    What is the difference between principles-based accounting and rules-based accounting?

    Almost all companies are required to prepare their financial statements as set out by the Financial Accounting Standards Board (FASB), whose standards are generally principles-based. Recently, ...
  8. Investing

    Given a good bookkeeping system, would financial accounting be necessary?

    Bookkeeping and financial accounting may seem like they are new creations, but variations have been around for millennia. The first record keeping systems, according to some, originated in about ...
  9. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  10. Delivery duty paid (DDP) is a shipping term.
    Investing

    What does DDP Mean?

    Delivery duty paid (DDP) is a shipping term specifying that the seller is responsible for all costs associated with delivery of the goods to the buyer. It is usually used when goods are exported ...

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center