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Activity-based Systems: Measuring the Costs of Resource Usage
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1992
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EngineeringBusiness IntelligenceProduction ManagementResource AvailabilityOperations ResearchProductivityManagementSystems EngineeringResource UsageCost ManagementActivity-based Cost SystemsWorkload CharacterizationQuantitative ManagementCost AllocationDesignConceptual BasisSupply Chain ManagementInformation ManagementCost IssueBusinessActivity-based CostCost AnalysisResource AllocationTechnology
Traditional cost systems allocate expenses based on volume-driven bases, yet many resource demands are not proportional to production or sales volume, leading to inaccurate cost measurement. This paper outlines the conceptual foundation for designing and employing activity‑based cost systems. Companies have adopted ABC systems to directly link activity costs to the products and customers that trigger those activities.
This paper describes the conceptual basis for the design and use of newly emerging activity-based cost (ABC) systems. TVaditional cost systems use volume-driven allocation bases, such as direct labor dollars, machine hours, and sales dollars, to assign organizational expenses to individual products and customers. But many ofthe resource demands by individual products and customers are not proportional to the volume of units produced or sold. Thus, conventional systems do not measure accurately the costs of resources used to design and produce products and to sell and deliver them to customers. Companies, including those with excellent traditional cost systems,^ have developed activity-based cost systems so that they can directly link the costs of performing organizational activities to the products and customers for which these activities are performed.