Activity – based costing method

Abstract

Activity based costing is a method of identifying and tracking the operating costs directly associated with processing items. It is the practice of focusing on some unit of output, such as a purchase order or an assembled automobile and attempting to determine its total as precisely as poccible based on the fixed and variable costs of the inputs.You use ABC to identify, quantify and analyze the various cost drivers (such as labor, materials, administrative overhead, rework.) and to determine which ones are candidates for reduction.A processes any activity that accepts inputs, adds value to these inputs for customers and produces outputs for these customers. The customer may be either internal or external to the organization. Every activity within an organization comprimes one or more processes. Inputs, controls and resources are all supplied to the process.A process owner is the person responsible for performing and or controlling the activity.The direction of cost through their contact to partial activity and processes is a new modern theme today. Beginning of this method is connected with very important changes in the firm processes.ABC method is a instrument , that bring a competitive advantages for the firm.

Keywords

• fixed costs
• variable costs
• cost drivers