Activity-Based Costing (ABC)

• Activity-based costing is an extension of duration analysis, where instead of analyzing time, you evaluate the cost of each step.

  • Steps with high costs are identified, and opportunities for cost reduction are explored.

  • Steps:

    1. Break down the process into activities.
    2. Assign costs to each activity based on resources, labor, and other factors.
    3. Analyze the cost structure and identify steps where costs are disproportionately high.
    4. Investigate whether these costs can be reduced by simplifying or optimizing steps.

Activity Based Costing

Benefits:

• Provides a clearer understanding of cost drivers within a process.
• Helps identify high-cost activities and offers opportunities to reduce expenses by optimizing processes.