Managerial Uses of Activity-Based Costing
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Product costs are a function of activities. Activity-based costing uses this theory to more accurately cost products. More companies are considering activitybased costing for their products. These companies have a lot of questions that need to be answered before switching their entire costing services. There are four categories of costs that are used in determining the cost of a product. By grouping costs into these categories, companies are able to see what costs are unnecessary and should be eliminated. Activity-based costing provides for better decision-making. A manager faces many decisions about products including the "make or buy decision". When using activity-based costing, the manager handles these decisions with ease. After considering all factors, a traditional cost system is inferior to an activity-based costing system. Products are more accurately costed, decisionmaking is easier, and companies find it better to work with.