Activity Based Costing (ABC) is a method for estimating costs for specific activities within the organization.

Activity Based Costing Fundamental principles:

• the collection of cost data based on the activities and business processes

• As a project is segmented into its activities, a cost estimate is typically prepared for each activity (typically contain labour, materials, equipment, and subcontracting costs, including overhead, for each activity). Each activity cost estimate is added to the others to produce an overall cost estimate for the entire project.

• Not all the activities are strategic and value-added for the company

How Activity Based Costing is applied:

1. map the activities and business processes;

2. create a chart of accounts for activities and processes;

3. Insert data within the chart of accounts for activities and processes;

4. identify activity and cost drivers for the allocation of costs per work order and customer;

5. create cost sheets with the cost data (product, committed, customer, geographic area, strategic area,…).

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