Make overhead follow the work
Explain when activity-based costing improves product or customer cost accuracy.
Activity-based costing turns overhead from a blanket charge into a map of work. The chain Resources fund activities. Activities serve products, jobs, channels, or customers. Cost drivers connect the activity to the cost object. If inspections consume quality-team time, inspection count or inspection hours may be a better driver than direct labor hours. When ABC helps ABC helps when products or customers consume shared work differently. Look for small batches, frequent setups, rush orders, rework, special handling, engineering support, or customer service intensity. When ABC overreaches A driver is only useful if it improves the decision. Do not build a…
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