Simply Strategy: The shortest route to the best strategy

Appendix Two. Glossary of Strategy Terms

 

 

Activity-Based Costing (ABC)

Allocating costs to products and customers on the basis of actual activities and costs required to produce and supply those products, or serve those customers. Activity-based costing is the opposite of AVERAGE COSTING. It can simply be achieved by taking a survey of the managers and employees involved. Or costs can be tracked each day by filling out time statistics, and/or the use of technology to track where employees spend their time.

Moving from average costing to activity-based costing analysis almost always reveals that certain products or customers require much more effort and cost, whereas others require very little. The latter are found to be much more profitable than ...