General & Administrative-costs cannot reasonably be associated with any particular product or service produced (overhead). These costs would remain the same no matter what output the activity produced. An example would be salaries of personnel in purchasing department, depreciation on equipment, and plant security. In the next step the results of analyzing activities and the gathered organizational inputs and costs are brought together, which produces the total input cost for

Activity-Based Costing and Traditional Systems Activity-based costing (ABC) measures the cost of a product/service based on the activities performed to produce the product/service. Activities are processes, functions, or tasks that occur over time and have recognized results. Activities use up assigned resources to produce products and services. An ABC system first allocates indirect and support expenses to activities and processes and then to products, services and customers. Therefore, the ABC system

(Questions that will assist in quantifying the relationship between resources and activities include: How much time is spent performing each activity? What equipment is used to perform activities? Do some activities have dedicated equipment? Do some activities require more space than others?) After the data on resources have been collected, establish cause-and-effect relationships between resources and activities or resources and cost objects. The third step in the process is

But the customized product probably takes much more design and engineering time than the mass-produced product. Traditional costing systems would not, in most cases, pick up this difference. With traditional costing a company that makes both low and high volume products might spread all of its overhead to products it manufactures based solely on machine hours. This might misallocate overheads between products. And if one product demands a significant amount

Activity-Based Costing Organizations that need help being more efficient and cost effective look to different concepts for help, one such concept is activity-based costing. Activity-based costing is used to manage an organization better and is meant to help with decision making by coming up with better information about the cost and performance of activities, resources and objects that consume resources ("Activity-based management -- an overview," 2001). This essay will discuss ABC

Activity-based costing (ABC) employs numerous cost groups, organized by activity, in the allocation of overhead costs. The conception is that activities are necessitated to generate products, basically activities, such as procuring materials, setting up machinery, assembling products, and scrutinizing finished products. It is imperative to note that these activities can be expenses and therefore the cost of activities ought to be apportioned to products on the basis of how the