Chapter 8

Activity-based costing

  • Why use it? Activity-based costing is used to allocate all costs to the activities the costs are incurred for.
  • What does it do? Contrary to traditional cost accounting methods, activity-based costing (ABC) calculates the ‘true’ costs of products, customers or services by attributing direct and indirect costs based, not on volume, but on actual time and resources spent on required activities.
  • When to use it? Activity-based costing can be useful if products/services or customer groups vary in complexity and handling costs.
  • What questions will it help you answer? How can I determine customer value accurately, considering all costs I incur for this customer? What (indirect) costs are too high per activity? Are ...

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