Activity Based Costing (ABC or ABC Costing) in Supply Chain Management
A methodology that measures the cost and performance of cost objects, activities and resources. Cost objects consume activities and activities consume resources. Resource costs are assigned to activities based on their use of those resources, and activity costs are reassigned to cost objects (outputs) based on the cost objects proportional use of those activities. Activity-based costing incorporates causal relationships between cost objects and activities and between activities and resources.
Key Components:
- Activities: Tasks or processes within the supply chain, such as warehousing, transportation, order processing, and inventory management.
- Cost Drivers: Factors that trigger costs, such as the number of shipments, handling time, or inventory turnover rates.
- Cost Pools: Aggregated costs for similar activities (e.g., costs associated with storage, labor, or equipment).
- Allocation Basis: A method for assigning costs to products or services based on the consumption of activities.
