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Implementing Activity-Based Costing

What is activity-based costing and how does it impact the role of management accountants?

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Activity-based costing (ABC) incorporates techniques to trace indirect costs (commonly called “overhead”)  to cost objects (e.g., products, services, and customers) by:

  • Identifying how resources are consumed by activities, which, ultimately, support the production of the desired cost objects
  • Distributing the costs of these resources in the same ratio that they consumed to determine the cost of activities and, ultimately, the costs attributable to the cost objects.

This document gives an overview of the approach to designing and implementing an ABC system, including:

  • The roles and responsibilities of management accountants in ABC projects;
  • The need for behavior change management when implementing an ABC system;
  • How to design and implement an ABC system,
  • How to plan an ABC project implementation,
  • How to ensure sustainability of an ABC system, and
  • How to evaluate ABC software.

Key Insights:

Management accountants are ideally suited to:

  • Lead the design and implementation effort of an ABC project.
  • Help identify the appropriate methodologies and aggregation of analysis.
  • Ensure the sustainability of an ABC system by it helping realize the informational needs of its users.

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