Activity-Based Costing

1684 WordsFeb 11, 20137 Pages
Navigate * Activity-Based Costing (Encyclopedia of Management) * Activity-Based Costing (Encyclopedia of Small Business) Activity-Based Costing * Print * PDF * Cite * Activity-based costing (ABC) is an accounting method that allows businesses to gather data about their operating costs. Costs are assigned to specific activitiesuch as planning, engineering, or manufacturingnd then the activities are associated with different products or services. In this way, the ABC method enables a business to decide which products, services, and resources are increasing their profitability, and which are contributing to losses. Managers are then able to generate data to create a better budget and gain a greater overall…show more content…
Too many details can prove frustrating for managers involved in ABC. On the other hand, a lack of detail can lead to insufficient data. Another obvious factor that tends to contribute to the downfall of activity-based costing is the simple failure to act on the results that the data provide. This generally happens in businesses that were reluctant to try ABC in the first place. In 1999, Gary Cokins wrote an article aimed at certified public accountants who have difficulty embracing activity-based costing. In "Learning to Love ABC," Cokins explains that activity-based costing usually works best with a minimum amount of detail and estimated cost figures. He backs this up by stating that "typically, when accountants try to apply ABC, they strive for a level of exactness that is both difficult to attain and time-consumingnd that eventually becomes the project 's kiss of death." In 2000, Cokins wrote another article entitled "Overcoming the Obstacles to Implementing Activity-Based Costing." In this work Cokins noted that "activity-based costing projects often fail because project managers ignore the cardinal rule: It is better to be approximately correct than to be precisely inaccurate. When it comes to ABC, close enough is not only good enough; close enough is often the

More about Activity-Based Costing

Open Document