Business – 5.4 Costs – Uses of cost information | e-Consult
5.4 Costs – Uses of cost information (1 questions)
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Activity‑Based Costing allocates overheads to products or services based on the actual activities that drive those costs, rather than using a single volume‑based driver. This provides a more accurate picture of resource consumption.
- More accurate product costing: By tracing costs to the activities that generate them, ABC reveals the true cost of each product, helping managers identify unprofitable lines and price appropriately.
- Improved cost control: ABC highlights high‑cost activities, allowing managers to target process improvements, eliminate waste, or redesign workflows to reduce expenses.
- Better strategic decisions: With clearer cost information, decisions about product mix, make‑or‑buy, outsourcing, and capacity utilisation become evidence‑based, supporting long‑term profitability.
- Enhanced performance monitoring: ABC provides activity‑level performance metrics (e.g., cost per transaction), enabling regular monitoring against benchmarks and quicker response to variances.
Overall, ABC equips managers with detailed cost insights that support more informed budgeting, pricing, and continuous improvement initiatives, thereby driving higher business performance.