Activity-based costing
Activity-based costing assigns overhead to activity cost pools and then to products, services or customers using drivers reflecting their consumption of those activities. It can reveal cost differences hidden by a single volume-based rate, especially where batch complexity and support work vary. It does not turn an indirect cost into an objectively direct cost or guarantee accuracy: useful pools, drivers and data are essential, and the benefit must justify implementation effort.
Worked example
A set-up pool of $30,000 supports 100 set-ups, giving $300 per set-up. A product requiring eight set-ups receives $2,400, regardless of whether its unit volume is large or small.
Common mistake
ABC is not automatically more accurate or relevant for every decision; allocated unused capacity may not be avoidable cash cost.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | APM | Direct | September 2026–June 2027 |
| ACCA | MA | Direct | September 2026–June 2027 |
| ACCA | PM | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |