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

Introduction to Activity-Based Costing

By: Robert S. Kaplan
  • Format:Print
  • | Pages:14
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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

Citation

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

Robert S. Kaplan

Accounting and Management
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More from the Author
  • Health System Perspective on Cost for Delivering a Decision Aid for Prostate Cancer Using Time-Driven Activity-Based Costing By: David R. Ho, Robert S. Kaplan, Jonathan Bergman, David F. Penson, Benjamin Waterman, Kristin C. Williams, Jefersson Villatoro, Lorna Kwan and Christopher S. Saigal
  • Vanderbilt: Transforming an Academic Health Care Delivery System, 2020 By: Michael E. Porter, Robert S. Kaplan, Mary L. Witkowski and David N. Bernstein
  • Vanderbilt: Transforming an Academic Health Care Delivery System, 2020 By: Michael E. Porter, Robert S. Kaplan, Mary L. Witkowski and David N. Bernstein
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