A cost planning system that is used as a mechanism for portraying a manufacturing organization as a series of activities designed to satisfy customer needs. The system of activity based costs portrays how activities consume resources and how products or customers trigger activities. This cost information is used in making tactical and strategic management decisions. Activity based costing systems have been developed to supplement or replace older labor-based accounting systems.
A management process in which activities or functions are clearly defined and tied to identifiable costs and staffing levels.
The process in which true costs of a particular activity are determined by factoring in all direct and indirect costs. Accurately identifies sources of profit and loss. A process by which the cost of performing activities and the use of resources are assigned to individual products based on the activities involved (i.e., ordering, receiving, stocking, picking, packing), and the use of resources (i.e., labor, utilities, equipment) in handling a particular product. This results in a more accurate reflection of an individual product's profitability than does gross profit.
Keywords:  freight