Definition of Activity Based Costing

Activity-based costing (ABC) allocates overhead and indirect costs that each product or service consumes in an organization. This bookkeeping strategy of costing recognizes the relationship between costs, overhead exercises, and manufactured items, allotting indirect costs to items less subjectively than conventional costing strategies. In any case, a few indirect costs, such as administration and office staff compensations, are troublesome to relegate to an item.

Activity-based costing (ABC) is generally utilized within the manufacturing industry since it upgrades the unwavering quality of cost data, consequently creating genuine costs and superior classifying the costs brought about by the company amid its production process.