Activity-Based Costing (ABC)
A costing method that assigns overhead and indirect costs to specific activities and then to products/services.
- Why it matters: Traditional costing often distorts costs by using generic drivers (like labor hours).
- Cost Drivers: Factors that cause the cost of an activity to increase (e.g., number of setups, machine hours).
- Process: Identify activities → Assign costs to activity pools → Determine cost drivers → Assign costs to products.