Activity based costing – ABC

An approach to cost accounting. It starts by determining how much it costs to perform a given activity in a process, and then adds up costs of all activities in the process to determine the total process costs. Fixed, variable, and direct costs associated with the activity are considered. This analytical technique is used as part of a business transformation effort to gain an understanding of the cost and income associated with a product or service, in order to determine true profitability.