What does ABC stand for in cost accounting?

What does ABC stand for in cost accounting?

• A. Activity Based Budgeting
• B. Activity Costing for Projects
• C. Activity Based Costing
• D. Activity-Based Overhead Allocation

Answer: (C)

Activity Based Costing assigns costs to products or services based on the activities required to produce them, using cost drivers that reflect how much each product uses each activity. This method moves beyond traditional costing that relies on a single overhead rate (like direct labor hours) and provides a more accurate view of what drives costs, such as setup, inspection, or material handling. By identifying activities, tracing their costs to those activities, selecting appropriate cost drivers, and then assigning those costs to cost objects, ABC reveals true profitability and supports better pricing, budgeting, and process decisions. The other terms aren’t standard naming for the full approach: budgeting by activities is a planning concept rather than the complete costing method, the phrasing about projects isn’t the recognized term, and overhead allocation, while part of ABC, isn’t the full title of the method.

Activity Based Costing assigns costs to products or services based on the activities required to produce them, using cost drivers that reflect how much each product uses each activity. This method moves beyond traditional costing that relies on a single overhead rate (like direct labor hours) and provides a more accurate view of what drives costs, such as setup, inspection, or material handling. By identifying activities, tracing their costs to those activities, selecting appropriate cost drivers, and then assigning those costs to cost objects, ABC reveals true profitability and supports better pricing, budgeting, and process decisions. The other terms aren’t standard naming for the full approach: budgeting by activities is a planning concept rather than the complete costing method, the phrasing about projects isn’t the recognized term, and overhead allocation, while part of ABC, isn’t the full title of the method.