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DOCUMENT DESCRIPTION

Activity Based Costing (ABC) is a technique used to develop more accurate costs in support of strategic decisions. ABC analysis is a methodology for assigning costs to those activities that truly drive these costs. It is a valuable technique to know for a number of key reasons:

1. ABC allows you to develop a picture of the true profitability of product lines, customer segments, distribution channels, geographies, and other market segments.

2. ABC aids in a number of strategic decisions, from determining target markets to selecting the optimal product mix to making informed pricing decisions.

ABC supports Performance Management and Operational Excellence techniques. ABC allows employees to understand the various costs involved. This enables them to analyze the cost, and to identify the activities that are Value-Add (VA) and Non-Value-Added (NVA). Many organizations use ABC as a basis for a Balanced Scorecard.

For a more in-depth guide on Activity Based Costing, look at this deck.

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Source: Activity Based Costing Primer PowerPoint document

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