What Is the Primary Benefit of Activity-Based Costing?

Activity-based costing provides a more accurate method of product/service costing, leading to more accurate pricing decisions. It increases understanding of overheads and cost drivers; and makes costly and non-value adding activities more visible, allowing managers to reduce or eliminate them.

What Is the Primary Benefit of Activity-Based Costing?

Activitybased costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity with resources to all products and services in the organization.

The cost of activities is assigned to products and services based on the activities that are required to produce them.

The primary benefit of activitybased costing is that it provides a more accurate costing of products and services than traditional costing methods.

ABC costing takes into account all of the costs associated with producing a product or service, not just the direct costs. This provides a more accurate picture of the true cost of producing a product or service.

In addition, ABC costing can be used to identify areas where cost savings can be achieved. By identifying the activities that are costing the most, organizations can focus on reducing or eliminating these costs.

This can lead to significant cost savings for the organization. Finally, ABC costing can help organizations to better understand their cost structure.

This understanding can be used to make decisions about pricing, product mix, and other strategic decisions.

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