Define Abc Costing Best Official

In traditional costing, a factory might spread electricity costs evenly across every product based on how many hours the factory runs. However, if Product A requires a massive, energy-intensive machine and Product B is assembled by hand, Product A should bear a much higher share of the electricity cost.

Divide the total cost in each pool by the total number of cost driver units. define abc costing

is a costing methodology that assigns overhead and indirect costs to specific products, services, or customers based on the activities that drive those costs. Unlike traditional costing systems (which often allocate overhead using a single, volume-based metric like direct labor hours or machine hours), ABC recognizes that many overhead costs are not proportional to production volume. It traces costs more accurately by focusing on the causes of cost incurrence—the activities. In traditional costing, a factory might spread electricity