ECONOMICS

Detailed explanation-1: -Key Takeaways. Activity-based costing (ABC) is a method of assigning overhead and indirect costs-such as salaries and utilities-to products and services.

Detailed explanation-2: -ABC systems differ from traditional job order costing systems in the different costs that are assigned to products. Using traditional costing, only manufacturing costs can be assigned to products. Under ABC, both manufacturing and non-manufacturing costs may be assigned.

Detailed explanation-3: -Activity-based costing (ABC) is a methodology for more precisely allocating overhead costs by assigning them to activities. Once costs are assigned to activities, the costs can be assigned to the cost objects that use those activities. The system can be employed for the targeted reduction of overhead costs.

Detailed explanation-4: -Activity-based costing is not simply used to allocate manufacturing overhead costs to products, it is also often used to allocate selling, general, and administrative costs to produce for internal decision-making purposes.