Where overheads are a large share of total cost, volume-based absorption can distort product margins. Activity-based costing traces overheads to the activities that consume them and then to products, customers or channels.
Scope of service
- Identification of activities and cost drivers
- Activity cost pools and driver rates
- Customer and channel profitability analysis
- Comparison with the existing absorption method
Regulatory framework
- CAS 3 (Production and Operation Overheads)
- CAS 11 (Administrative Overheads)
- CAS 15 (Selling and Distribution Overheads)
Typical professional activities
- Interviews with departmental heads
- Driver data extraction
- ABC model build and validation
- Management presentation of findings
Applicable industries
Relevant articles and resources
- CAS-2: capacity determination and the cost of idle capacity
- CAS-4: cost of production for captive consumption
- CAS-6: measuring material cost
- CAS-7: employee cost in product costing
- Knowledge Centre: Cost Accounting
The information on this page describes the nature of the service. It is not advice on any specific matter. See the disclaimer.