An accounting technique that allows an organization to determine the actual cost associated with each product and
service produced by the organization, without regard to organizational structure. The cost accounting approach is concerned with matching costs with activities (called cost drivers) that cause those costs. It is a more sophisticated kind of absorption-costing and replaces labor-based costing systems.
Instead of allocating costs to cost centers (such as manufacturing, marketing, finance), ABC allocates direct and indirect costs to activities such as processing an order, attending to a customer complaint, or setting up a machine.
