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Activity Based Costing

Activities are also differentiated as primary and secondary activities. Primary activities are those that assist directly in the output of the organization while secondary activities are those that support primary activities [8].
             This step helps the management to make decisions regarding the non value added activities that do not provide any benefit to the organization [8].
             Gathering Costs:.
             This step involves identifying the costs related to the activities preformed in an organization. The costs can be direct or indirect costs. Examples of these costs may be wages, office supplies, management salaries etc. when exact costs are not available, budgeted or estimated costs can be used [8].
             Some organizations may include this step followed by the step of assigning costs to activities [3].
             Tracing costs to Activities:.
             Tracing involves the process of assigning costs to activities. These costs can include the direct, indirect and overhead costs as mentioned in step 2 [3]. The actual costs are not calculated, they are just assigned to activities.
             Establishing Output Measures: .
             Outputs are identified and costs are assigned to the outputs. The identification may also be done as a separate step depending on the size of the organization [3]. .
             Activities need inputs to generate outputs and these inputs are resources or raw materials for a manufacturing organization. Since activities are used in the generation of outputs, the costs of the activity are used for the outputs. In case of multiple outputs, the primary outputs are identified and activity costs are assigned using the input costs for the secondary activities as well [8]. The output should be measurable in units, where the unit cost is calculated by dividing the total cost of the activities with the volume of output in units.
             Analyze costs.
             The activity costs identified and assigned in the above steps are used in this final step for tuning the organizations business processes.


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