ACTIVITY BASED COSTING - A TOOL TO CONTROL THE COST

Activity - based cost ing (ABC) is a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. The concept of ABC was first defined in the late 1980s by Robert Kaplan and William Burns. Initially ABC focused on manufacturing industry where technological developments and productivity improvements had reduced the proportion of direct labour and material costs, but increased the proportion of indire ct or overhead costs. Activity analysis is the process of identifying appropriate output measures of activities and resources (cost drivers) and their effects on the costs of making a product or providing a service. Activity - based costing is more effective when used in long - term rather than in short - term. Activity - based costing (ABC) is a methodology for more precisely allocating overhead to t hose items that actually use it .