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.
A cost accounting methodology that assigns costs to cost objects (products, functions, projects) based on their use of resources. It attempts to precisely allocate overhead based on the real factors ...
A cost accounting method which allocates activity costs (as opposed to direct labor or machine hours) to products, customers, projects, or other groups.
An accounting approach that provides businesses with better understanding of its costs, and therefore its profits. Capable ABC systems provide accurate cost information to the individual item level. In terms of understanding costs of pallet systems, the approach first became popular with the Cleveland Consulting Associates study of the U.S. grocery system in the late 1980s and early 1990s.
A form of cost accounting that examines the cost of each business process function as part of process mapping, focusing on identifying non-value-added process functions to they can be eliminated.
allocation of costs. Activity Based Costing (ABC) assumes that the volume of contributing activities is the primary driver of the cost of delivered value and allocates costs according to contributing activity execution.
An accounting method that measures business profits and costs by taking into account both overhead and the cost of wasteful or inefficient practices two items that are not considered in conventional accounting methods.
A methodology that measures the cost and performance of activities, resources, and cost objects. Resources are assigned to activities, then activities are assigned to cost objects based on their use. Activity-based costing recognizes the causal relationships of cost drivers to activities.
A cost planning system that combines tasks into significant activities allowing cost to be assigned efficiently.
A management accounting system that assigns cost to products based on the resources used to perform a process (design, order entry, production, etc.) These resources include floor space, raw materials, energy, machine time, labor, etc.
ABC is an approach to estimating and managing costs by determining their underlying drivers to ensure certain customers or products are not being subsidized at the expense of others.
A method of measuring the cost and performance of activities and cost objects. It assigns costs to activities based on their use of resources. ABC recognises the causal relationship of cost drivers to activities.
