Activity-based Costing (ABC)

Activity-based costing (ABC) is a method of assigning costs to products or services based on the activities required for their production. This includes things such as materials and labor. The difference between this approach versus traditional accounting methods, where costs are assigned solely by volume produced (i.e., units sold), is that ABC allows companies to more accurately determine the cost of each product or service they have because it considers all factors involved in creating them—not just how many were made but also what went into making them.