The Process of Activity Based Costing (ABC) simplified
While doing ABC the only thing to be kept in mind is the activity and the cost associated with it.
For example : A businessman buys a bus for using it in his public transport business. So he will analyse the cost associated with procurement of bus. Then he will have to analyse the cost of getting a driver, everyday fuel consumption, maintainance, contingencies. Now by using ABC, he can eliminate all the unnecessary steps which add to the cost but don't add any (enough) value to the product.
ABC is a helpful tool if you have clarity of ABC and the process under observation.
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