Activity based costing (ABC) involves the identification of the factors which cause the costs of an organisation's major activities. The major ideas behind activity based costing are as follows.
(a) Activities cause costs. Activities include ordering, materials handling, machining, assembly, production scheduling and despatching.
(b) Producing products creates demand for the activities.
(c) Costs are assigned to a product on the basis of the product s consumption of the activities.
(a) Activities cause costs. Activities include ordering, materials handling, machining, assembly, production scheduling and despatching.
(b) Producing products creates demand for the activities.
(c) Costs are assigned to a product on the basis of the product s consumption of the activities.
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