Activity Based Costing
Activity Based Costing By John Glidewell Deliveries, pickups, mileage, packages, and many other activities involved at United Parcel Service (UPS) are used to apply cost to shipping charges. From these activities UPS uses Activity-Based Costing System (ABC) to maximize their profits. ... This is just one example of many that have been thriving in using this costing system. Activity Based Costing is a system used to measure the cost and performance of activities, resources and cost objects. ... What ABC does is trace the flow of activities in organization by producing a casual bond between the activity (resource consumption) and the cost object. There are five core areas that this flow identifies resources, resource drivers, activities, activity drivers, and cost objects (products, services, customers, and market areas). ABC differs from conventional costing systems in two distinct ways: 1. ... Conventional cost systems are based on unit-level cost drivers (these unit level cost drivers are often referred to as allocation bases in conventional cost systems) of the product that are directly proportional to the number of units produced.