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Activity-Based Costing (ABC)

Allocate overheads to products using up to three activity cost pools and drivers, and compare the resulting unit cost to traditional volume-based overhead absorption.

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Données vérifiées · July 2026

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Everything about Activity-Based Costing (ABC)

📋Overview+

Activity-based costing groups overheads into cost pools driven by real activities — set-ups, orders processed, machine hours — rather than spreading them evenly per unit. Each pool's cost is divided by its total driver volume to give a rate, then multiplied by the driver units actually consumed by your product, giving a more accurate overhead cost per unit than a single traditional overhead rate.

💡 Best practices

ABC is most valuable where overheads are large and products consume activities in very different proportions — it adds little for simple, homogeneous production.
A large gap between the ABC and traditional unit cost usually signals that low-volume, complex products were being under-costed under the traditional method.
Choosing drivers that genuinely reflect cause-and-effect (not just what's easy to measure) is the single biggest determinant of ABC accuracy.

🔢 Concrete example

1,000 units, £15 material + £10 labour per unit, a set-up pool of £20,000 (500 total set-ups, 50 used by this product): set-up rate £40/setup adds £2,000 to this product's overhead.

📖User guide+

How to use this calculator

1
Enter units produced and the direct material and labour cost per unit.
2
For each of up to three cost pools, enter the pool's total cost, the total driver volume across all products, and the driver volume used by this product.
3
Enter your traditional (volume-based) overhead rate per unit for comparison.
4
Compare the ABC total unit cost to the traditional unit cost.

📚Glossary+

Cost driver: The activity that causes a cost pool to be incurred — for example, the number of machine set-ups drives set-up costs, and the number of purchase orders drives ordering costs.
Cost pool: A grouping of overhead costs that share the same cost driver, allocated to products based on how much of that driver each product consumes.

ℹ️Sources & updates+

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Last data update

July 7, 2026

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Sources and references

CIMA — Activity-Based Costing (ABC) topic guide; Drury, Management and Cost Accounting, activity-based costing chapter.

The data in this calculator is updated regularly to reflect the latest official rates. When in doubt, consult the official sources listed above.

FAQ — Activity-Based Costing (ABC)

Do I need to fill in all three cost pools?+

No — leave unused pools at zero; the calculator only allocates overhead for the pools you complete.

Why does ABC often show a higher cost for low-volume products?+

Traditional costing spreads overhead evenly per unit, understating the cost of complex, low-volume products that consume a disproportionate share of set-ups, orders and other activities — ABC corrects for this.

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