Skip to content
Skip to the tool
  1. 1Stage 1
  2. 2Stage 2
  3. 3Stage 3
← All tools

Activity-Based Costing (ABC)

Business analysisFinancial analysis

Reference model

Activity-Based Costing OverviewA canvas of 9 boxes laid out on a grid of 3 columns and 3 rows: Identify Activities, Assign Costs to Activities, Identify Cost Drivers, Calculate Activity Rates, Assign Costs to Products, Analyze Profitability, Continuous Improvement, Review and Adjust, Strategic Decision Making.Identify ActivitiesList all activities involved inproduction.Assign Costs to ActivitiesAllocate overhead costs to eachidentified activity.Identify Cost DriversDetermine what drives the costsof each activity.Calculate Activity RatesDivide total costs by the numberof cost drivers.Assign Costs to ProductsUse activity rates to assigncosts to products based on theirusage of activities.Analyze ProfitabilityEvaluate the profitability ofproducts based on accurate costdata.Continuous ImprovementUse insights to improve processesand reduce costs.Review and AdjustRegularly review activity costsand adjust as necessary.Strategic Decision MakingMake informed decisions based onaccurate cost data.

ABC provides insights into cost drivers and profitability by linking costs to activities.

About this model

A costing method that assigns indirect costs to products based on the activities required to produce them, providing more accurate product costing.

Originator not stated.

How to read it

  • Focus on activities that consume resources and drive costs.
  • Analyze how these activities contribute to product or service costs.

What this does

Allocates overhead costs to specific activities, helping to identify the true cost of products or services and improve pricing and profitability decisions.

When to use it

Use it when you need a detailed understanding of costs associated with specific activities and how they impact profitability.

Not when: Do not use it when overhead costs are minimal or when a simpler costing method suffices.

What happens next

Consider using a cost-volume-profit analysis to assess the impact of changes in costs and volume on profitability.

Golden thread

Builds on ←

  • Cost structure analysis
  • Product profitability analysis

Feeds into →

  • Financial performance report

Use this tool, free

Sign in to open the worksheet. Your work saves as you type, the AI can draft the parts you have not filled in, and you finish with an analysis and a 30/60/90-day action plan.

Sign inCreate a free account

Drafted with AI and reviewed by Eccellere on 04/11/2026. Guidance, not advice: apply your own judgement.