Activity Based Costing is a technique that was originally developed to improve a company's understanding of the cost of the products and services it provides. ABC provides this improved understanding by first tracing resources (operating costs) to the activities (work) performed within the organization. Secondly, these activities are traced to the products, services, or customers for whom the activity is performed. The primary uses of Activity Based Costs tend to be strategic in nature and include:
Evaluation of product line or customer profitability
Enhancement of make or buy decisions, and
Costing of intra-company services.
Activity Based Management, addresses not only the strategic issues of profitability of products, customers
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