What is Activity Cost

This chapter introduces role of activity based costing system in the present business environment where businesses are under threat from corporate restructuring, technological innovations, customer expectations, de-regulations, and opportunities by way of collaboration, outsourcing and integration. Strategies of a business provide road map to organization and have multiple options. In a business, cost is the basic attribute in decision making process and drawing strategy. ABC provides a better approach to understand business process in relation with cost incidence. A business process is made up of activities which are performed by resources. These resources are responsible for expenditure and contain cost. ABC uses two stage cost assignment system for accurate and informative cost. ABC allows a better visualization of use of resources and explanation to understand where, why and how costs are being incurred. ABC is dynamic in nature, provide real cost and proactive in approach to simulate quantitative and qualitative measures of the process.