Editing Activity-based costing (section)

==Methodology==
{{unreferenced section|date=March 2020}}
Methodology of ABC focuses on [[cost allocation]] in operational management. ABC helps to segregate
* [[Fixed cost]]
* [[Variable cost]]
* [[Overhead cost]]
If achieved, the split of cost helps to identify [[cost driver]]s. Direct labour and materials are relatively easy to trace directly to products, but it is more difficult to directly allocate indirect costs to products. Where products use common resources differently, some sort of weighting is needed in the cost allocation process. The ''cost driver'' is a factor that creates or drives the cost of the activity. For example, the cost of the activity of bank tellers can be ascribed to each product by measuring how long each product's transactions (cost driver) take at the counter and then by measuring the number of each type of transaction. For the activity of running machinery, the driver is likely to be machine operating hours, looking at labor, maintenance, and power cost during the period of machinery activity.