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ABC Method Concept
ABC method or System (Activity Based
Costing) is an accountancy technique or method, developed by Robert
Kaplan and Cooper at Harvard in the mid 80s being applied in analytic
accounting with the aim to guarantee a correct attribution of all costs,
including the indirect costs to activities that are in its origin. The
use of ABC method allows the organizations to determine costs associated
to each activity, segment, area or product (being, to each costs center)
and, this way evaluate profitability or contribution of each costs
centre for the company’s profitability as a whole.
The costs are analyzed, associating the
activities to the products or services based on the search for such
activities for the product or service during the production process. In
fact, ABC method shows the relation between consumed Resources (what was
spent; water, energy, salaries, raw materials, etc.), performed
Activities (where was spent: production, computers, sales, after sales
services, etc.), and Cost Objects or Outputs (for what was spent:
product A, product B, Activity C, etc.).
While in the traditional methods used in
analytic accountancy costs allocation is made by criteria for limited
apportionment (usually produced or sold quantity), on ABC method exists
a multiplicity of criteria (denominated steering costs or cost drivers)
each one specific to the activity (cost) to which relates. Steering
costs (cost driver) represents the volume cause of the resources
consumed by the activity.
Translated from Portuguese
by Susana Saraiva, Portuguese-English and English-Portuguese translation
specialist. Contact: spams@sapo.pt.
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