Activity-Based Costing (ABC)



any event or task that causes the consumption of overhead resources

activity cost driver

unit of manufacturing action that creates a change in the unit's expense

activity cost pool

combination of all the expenses related to a specific task, such as making a product or providing a service

activity measure

quantity of an activity that creates the activity costs in a cost pool

activity rate

ratio of manufacturing overhead and total indirect costs, divided by a cost driver to determine a rate

activity-based costing (ABC)

accounting method in which expenses for overhead are distributed to manufactured items on the basis of the activities required

activity-based management

approach to managing costs that focuses on the assignment of costs to production activities

batch-level activity

activity that depends on the number of batches run rather than on the number of units in the batch


process of measuring the quality of a company's products, performance, or processes against specific standards

cost object

any item for which a business measures costs; for example, a product, service, department, or activity


operating costs or expenses, such as rent, electricity, or taxes

product-level activity

product-specific process that must be carried out regardless of the number of units produced or batches run

traditional costing

system of accounting in which overhead expenses are placed into a single pool and distributed based on a predetermined rate

unit-level activity

activity that occurs every time a unit is produced, giving a proportional cost per unit created