Harprit Singh Activity based costing system, also known as ABC, is a tool used by businesses to gather data about their operating costs. ABC assigns various activities into a four level cost structure-unit level, batch level, product level, product sustaining level, and facility sustaining level- to determine how far down the production cycle costs should be pushed and in order to identify cost allocation bases. This way, the ABC method allows a business to decide which products or services are increasing their profitability and which ones are not, therefore allowing managers to have a better understanding of the expenses that are required to run the day to day business. When implementing an ABC system it’s important to identify various activities into the correct cost pool and to break up current cost pools into finer pools. Some companies insist on developing a team comprised of experts from different areas of the company to give their inputs for determining which activities are necessary for the product or service. After the costs are determined and the information has been analyzed through ABC it can
This is the end of the preview.
access the rest of the document.