ABSTRACT
Activity based costing (ABC) is a comparatively new approach to absorption costing, in that it recognises that to use simply labour hours or machine hours to recover overheads can be inaccurate. A great benefit of ABC is that it enables a more accurate costing of all the processes within an organisation. This mapping and costing of current processes, and the consequential alteration in processes, is now called business process re-engineering (BPR). There is a charge included in the general overheads. Depreciation is also listed separately from general overheads as a charge. Depreciation is charged on a machine that is being used for the process but is well over specification in the requirement for the job. The principal cost drivers would be established initially, and these cost drivers would then be used to establish the pools. A cost pool would contain all the costs that have the same cost driver. For instance, a cost driver might be area occupied.
