What is activity based costing?

Activity Based Costing (ABC) is a costing methodology that assigns overhead and indirect costs to specific activities within an organization, rather than spreading them evenly across all products or services. This approach helps organizations more accurately determine the true cost of producing a product or delivering a service by identifying which activities consume resources. By using ABC, companies can make better decisions about pricing, product mix, and process improvements. It is especially useful in complex environments where overhead costs are significant and not easily traced to individual products.