The big picture
Activity-based costing is a cost accounting model. It is used to allocate all costs, based on time spent on activities relating to products and services provided for customers. Traditional cost accounting models allocate indirect costs (overhead) based on volume. As a result, the costs of high-volume products tend to be over-rated, whereas the costs of low-volume products are under-rated. Contrary to traditional cost accounting methods, activity-based costing (ABC) calculates the ‘true’ costs of products, customers or services by attributing indirect costs based, not on volume, but on required or ...