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Business Planning and Entrepreneurship by Michael Kraten

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Chapter 9

Assessing Cost Structures With Activity-Based Costing

About This Chapter

Chapter 9 continues our review of the cost estimation section by explaining how the cost structures of different product and service lines can be analyzed through activity-based costing. Organizations must define activities for each product or service, assign cost drivers to each activity, and then allocate costs to each activity in proportion to the fluctuations of the cost drivers.

There are a variety of strategic decisions that may be undertaken by an organization if an activity-based costing analysis reveals that the cost of producing a product or service is relatively high. The firm might decide to raise its price if consumers are willing to pay a premium ...

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