Using Activity Based Costing Analysis, an organization can soundly estimate the cost elements of entire products and services.
ABC is a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. With ABC, an organization can soundly estimate the cost elements of entire products and services. That may help inform a company’s decision to either:
- Identify and eliminate those products and services that are unprofitable and lower the prices of those that are overpriced (product and service portfolio aim).
- identify and eliminate production or service processes that are ineffective and allocate processing concepts that lead to the very same product at a better yield (process re-engineering aim).