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Activity-Based Costing: Improving Cost and Expense Analyses

  Arthur F. Rothberg, Managing Director, CFO Edge, LLC  
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  Article Summary  
Activity-Based Costing (ABC) is a special costing model that manages business costs or expenses by identifying activities used for the production of products or services. This model assigns indirect costs, such as overhead, to products or services so as to better distinguish which products are profitable and which are actually inefficient.

Reviewed in the full article are the general background of activity-based costing and the four principal steps involved in implementing it. Also addressed are the benefits of activity-based costing, especially the ways it can be applied to identify inefficient products, departments and activities across the entire business spectrum.

The bottom line: activity-based costing is an efficient means of developing a comprehensive picture of a business’ costs and expenditures as they relate to products and services. ABC is simple to implement and can be focused on one area of production or the entire range of business operations to significantly improve efficiencies and increase profitability.

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