ACTIVITY BASED

COSTING
COST & MANAGEMENT ACCOUNTING
GROUP MEMBERS
PRAGYA UPADHAYAY
SONALI
SABURI
RASIKA BHAT
RASHMI MISHRA
SEJAL CHATURVEDI
 INTRODUCTION
• Activity-based costing (ABC) is a costing method that
assigns overhead and indirect costs to related products and services.
• ABC identifies opportunities to improve business process
effectiveness and efficiency by determining the “true” cost of a
product or service. 
• It accurately identifies sources of profit and loss.(EXAMPLES).
 TERMINLOGIES

ACTIVITY RESOURCE COST

Refers to an Resources are Cost is amount

event that elements that are paid for resource
incurs cost. used for consumed by the
performing the activity.
activities
COST OBJECT COST POOL COST DRIVER

It is an item for which It represents a group of It is a factor that

cost measurement is various individual cost causes in the cost of
required. items. an activity.
 COST
DRIVER

RESOURCE ACTIVITY
COST COST
DRIVER DRIVER
 ADVANTAGES
• More accurate costing of products.
• Links up cause and effect relationship.
• To identify the value added activities and non-value added activities.
• Overhead allocations is done on logical basis.
• Utilizes Unit cost rather than just total cost.
 LIMITATIONS
• More time consuming.
• Not suitable for small organizations
• Selection of Most suitable cost drivers may not be easy.