What is Activity Based Costing?
In a traditional costing system, sometimes referred to as simple costing, costs are distributed evenly to the users of the costs. This can be not only an unfair process but also can lead management to make wrong decisions regarding product sustainability for the business.
For example, let us say there are three roommates: David, Matt and Brian. They began sharing the costs ($900 per months) equally but were not participating in the activities of living there equally. The activities that each roommate may have partook were eating, watching TV, and surfing the Internet.
For example, let us say there are three roommates: David, Matt and Brian. They began sharing the costs ($900 per months) equally but were not participating in the activities of living there equally. The activities that each roommate may have partook were eating, watching TV, and surfing the Internet.
