Activity based costing is the method of costing used to calculate the cost of the product based on their activities rather than other bases like original costing. Under this method overhead cost of activity is identified and assigned to the units based on their number of activities. This method can be helpful to calculate the accurate cost of the product. A refinement to the costing process was the creation of activity-based management.
Work Step by Step
Activity based management broadens the use of activity-based costing into a management tool whose focus is on reducing costs and improving production and decision-making functions. One of the key components of the system is to focus on whether or not activities add or do not add value to a given product.