Introduction to Activity-Based Costing

Robert S. Kaplan

Background Note | HBS Case Collection | February 1997 (Revised July 2001)

Introduction to Activity-Based Costing

Abstract

Introduces the fundamental notions of activity-based costing (ABC). Motivates ABC by means of a simple example, a single and a diversified pen factory. Proceeds to show how ABC assigns costs more accurately to products and customers by: 1) identifying the activities being performed by organizational resources; 2) assigning resource costs to the activities; 3) identifying all the products, services, and customers of the organization; and 4) assigning activity costs to these outputs via activity cost drivers. Also covers activity attributes, such as the cost hierarchy, value and non-value added, and business processes, as well as different types of activity cost drivers: transaction, duration, and intensity. Closes with the admonition to balance the benefits from more accurate cost estimates with the cost of developing an appropriate activity-based cost system.

Keywords: Activity Based Costing and Management;

Format: Print

14 pages

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Kaplan, Robert S. "Introduction to Activity-Based Costing." Harvard Business School Background Note 197-076, February 1997. (Revised July 2001.)

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Introduction to Activity-Based Costing

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