Activity Based Costing is a managerial accounting tool that attempts to ensure that every cent spent by an organization, including direct and overhead costs, is allocated to the products or services in the most equitable way in order to realistically identify the cost to the organization of delivering those products or services.
(The Essence of ABC – The OffTech Approach)
Other Definitions
Activity-Based Costing (ABC) – is a costing system that identifies the various activities performed in a firm and uses multiple cost drivers (non-volume as well as the volume based cost drivers) to assign overhead costs (or indirect costs) to products. ABC recognizes the causal relationship of cost drivers with activities.(ventureline.com Accounting Dictionary)
Activity-Based Costing (ABC) – ABC yields cost information that may be significantly different than what is provided when the traditional absorption cost method is used. ABC is another form of parametric modeling but it relies on current cost data defined through current cost estimates that consider procurement cost and resource demands. (SuccessfulProjects.com Project Management Glossary/Lexicon)
Activity-Based Costing (ABC) – A form of cost accounting that focuses on the costs of performing specific functions (processes, activities, tasks, etc.) rather than on the costs of organizational units. ABC generates more accurate cost and performance information related to specific products and services than is available to managers through traditional cost accounting approaches. (iSixSigma Dictionary)
Activity-Based Costing (ABC) –
A methodology that measures the cost and performance of cost objects, activities and resources. Cost objects consume activities and activities consume resources. Resource costs are assigned to activities based on their use of those resources, and activity costs are reassigned to cost objects (outputs) based on the cost objects’ proportional use of those activities. Activity-based costing incorporates causal relationships between cost objects and activities and between activities and resources.
Activity Based Costing (ABC) – is a method for developing cost estimates in which the project is subdivided into discrete, quantifiable activities or a work unit. The activity must be definable where productivity can be measured in units (e.g., number of samples versus manhours). After the project is broken into its activities, a cost estimate is prepared for each activity. These individual cost estimates will contain all labor, materials, equipment, and subcontracting costs, including overhead, for each activity. Each complete individual estimate is added to the others to obtain an overall estimate. Contingency and escalation can be calculated for each activity or after all the activities have been summed.
