Introduction to Activity Based Costing

Learn how ABC system is better than traditional costing systems through a practical example

Course Description

Traditional cost accounting spreads out overhead and indirect costs over product cost, based on a random and inaccurate driver such as manufacturing cost, labor hours, units sold, revenue, etc. This results in over- and under-allocation of some products and customers, which can distort the profitability of products and customers. This can lead to misinformed management, and decisions to prioritize certain products or customers can have disastrous outcomes because of it.

Activity-based costing (ABC) is mostly used in the manufacturing industry since it enhances the reliability of cost data, hence producing nearly true costs and better classifying the costs incurred by the company during its production process.

ABC is used to get a better grasp on costs, allowing companies to form a more appropriate pricing strategy.

Step by Step ABC calculation is as follows:

· Identify all the activities required to create the product.

· Divide the activities into cost pools, which include all the individual costs related to an activity—such as manufacturing. Calculate the total overhead of each cost pool.

· Assign each cost pool activity cost drivers, such as hours or units.

· Calculate the cost driver rate by dividing the total overhead in each cost pool by the total cost drivers.

· Divide the total overhead of each cost pool by the total cost drivers to get the cost driver rate.

· Multiply the cost driver rate by the number of cost drivers.

In this course we will take you through the practical aspects of each step one by one.

Who this course is for:

  • finance managers
  • business leaders
  • cost accountants
  • accounting professionals
  • factory managers responsible for costing decisions


  • What is Activity based Costing (ABC)

  • Steps in implementing ABC system

  • How ABC system is different from traditional costing methods

  • Benefits of implementing ABC system

  • Case Study to understand practical implications


  • Prior understanding of basic cost accounting would be ideal

Show More


  • Activity Based Costing
  • What is activity based costing
  • Functional Based Costing and Differences
  • Designing ABC System
  • Steps 1 -Identify activites & Cost Pools
  • Steps2 - Activity Cost Driver
  • Step3 - Assign Cost to Activity Pools
  • Steps 4 -Calculate the Activity Rates
  • Steps5 - Assign Cost to Objects
  • Step6- Reporting and Monitoring
  • Final Videos with more examples
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Introduction to Activity Based Costing
This Course Includes
  • 1.5 hours
  • 11 Lectures
  • Completion Certificate Sample Certificate
  • Lifetime Access Yes
  • Language English
  • 30-Days Money Back Guarantee

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