Activity-Based Cost Accounting In recent years, activity-based cost

Activity-based costing focuses on capacity and expenses at the micro, not macro, level of a company's operations. ABC recognizes that products are not the same and that the level of effort required to produce different products varies with the products themselves. Activities consume resources; products consume activities (Yang & Wu, May 1993, p. 34). Activity-based costing is based on the premise that activities have to be identified for proper costing. Activity-based costing segregates the expenses of indirect and support resources by activities. These expenses are then assigned based on the drivers of the activities (Cooper & Kaplan, May-June 1991, p. 131). In this way, managers receive information from the ABC method that indicates whic

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example, in a traditional accounting structure, accountants and financial professionals are those who are most intimately involved with producing and disseminating financial information. Technical personnel have had little input to the accounting system, and accountants have had little input to the technical systems. Those roles change significantly when an ABC system is introduced. If technical personnel are involved with the ABC system, entering data and receiving information from the system, they are also likely to make contributions designed to enhance the system, yielding more accurate and relevant information down the line (Merz & Hardy, September 1993, p. 22). At the same time, the traditional role of the accountant changes in organizations that implement ABC systems fully. In traditional accounting systems, overhead is applied as a percentage of direct material cost. Changing a product's design would result in changes to the manufacturing operation, but traditional accounting systems are unable to provide information that could help manager quantify what those changes would actually cost. ABC introduces a cost system that can help managers see how such changes actually affect the manufacturing process, with the res
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