activity-based costing

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Activity Based Budgeting

A way to budget that analyzes potential activities in which a company can engage. These activities are organized according to the company's goals, and the costs of each are organized to compile the budget. ABB contrasts with traditional budgeting, which usually simply increases the previous year's budget to account for inflation and the like; rather, ABB seeks out new opportunities and allocates resources in the budget based on them. Proponents say that ABB is a more accurate way to forecast budgeting.
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activity-based costing

a system of product costing which seeks to break down the divide between FIXED COSTS and VARIABLE COSTS by looking at the total cost to the business of making a product. All costs are related to cost drivers - the factors which influence the cost of a product.

Activity costing is suggested as an alternative to STANDARD COSTING, which analyses labour costs in detail and tends to share out overheads between products by reference to the direct labour hours involved in making different products. However, in automated factories, where labour is a relatively unimportant part of the total product cost, such detailed analysis of labour may not be justified and direct labour costs may be an inappropriate basis for analysing overheads. For such automated plants activity costing may be preferable, focusing as it does on the forces driving the costs of being in business.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
References in periodicals archive ?
Knowledge of the historical development of activity-based costing is important in order to clearly understand what ABC analysis was originally intended to accomplish.
Both of the models adapt Activity-based Costing systems or techniques.
"Activity-based costing is a cost accounting concept based on the premise that products (and/or services) require an organization to perform activities and that those activities require an organization to incur costs.
Based on the call for changes in Relevance Lost, Kaplan and Cooper developed the concepts and principles of activity-based costing (ABC), wrote teaching cases about ABC initiatives, used them in their MBA classes, and later helped companies implement ABC.
One must be cautious about approaching value-based medicine through the lens of time-driven activity-based costing, which has some limitations.
Activity-based costing reports all the costs of a product or service until the customer actually buys the product, and provides the foundation for integrating cost and value into one analysis.
* Source: Anne-Marie Lelkes, Simplifying Activity-Based Costing, dissertation, Oklahoma State University, December 2009; Anne-Marie Lelkes and Donald Deis, "Using the Production Cycle Time to Reduce the Complexity of Activity-Based Costing Systems," Journal of Theoretical Accounting Research, October 2013, pp.
Activity-based costing is one of strategic management accounting techniques and it is an important management accounting innovation for well over a decade (Innes et al.
As Kaplan and Anderson (2004, 2007) and Namazi (2009, 2016a, 2016b) extensively pointed out, a major impute for the emergence of the time-driven activity-based costing (TDABC) and performance-based activity-based costing (PFABC), as the second and third generations of the ABC, relates to the awareness of the companies about the ABC weaknesses.
Future researches should include measuring the impact of activity-based costing on their firm performance either through a case study or to examine the relationship between influences of cost accounting standards, practices and technological factors related with adoption of an activity-based costing system.
Activity-based costing (ABC) is a simple and concise method to represent activities involved in a process.

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