Outline Of Activity Based Costing (ABC)

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.

The Development Of Activity Based Costing (ABC)

Absorption costing was developed in a time when most organisations produced only a narrow range of products and overhead costs were only a very small fraction of total costs. In recent years there has been a dramatic fall in the costs of processing information and due to advanced manufacturing technology (AMT), overheads are likely to be more important. The support activities such setting-up, production scheduling, inspection and data processing have increased due to AMT and manufacture of a wide range of products.