Activity Based Costing
In managerial accounting, the topic of activity-based costing plays a very important role. This concept has been adopted by a variety of manufacturing, service, and nonprofit organizations across the world. Because activity-based costing is used as a supplement to the typical costing system, an individual needs to become more aware of what exactly activity-based costing is, the components of activity-based costing, and steps for performing activity-based costing. With a better understanding of this concept, an individual will become more aware of how to allocate their resources within the company more accurately.
Understanding exactly what activity based costing is, is extremely important. According to the Activity Based Costing Portal, "activity-based costing is a costing model that identifies the cost pools, or activity centers in an organization, and assigns costs to products and services (cost drivers) based on the number of events or transactions involved in the process of providing a product or service." Typically, the costs among the organization are divided and directed to the particular job or product. By connecting the activities with the jobs, the cost of the activities are better allocated to the particular jobs and products. Understanding activities is essential in order to improve the business process, since the activities are one of the main aspects within the business process. When the workforce better understands the activities, they will better understand why the particular cost is associated with such an activity. Activity-based costing also tells people within the company how to spend the money, and exactly what to do with it. The capability to put costs on activities allows for a vast improvement among ...