ABC costing (Activity-Based Costing) is a budgeting and analysis process that identifies a company’s fixed and variable costs, allocating them to customers, products, services, orders, etc. ABC costing informs management which customers and products are profitable and which ones consume more than they contribute. Successful ABC-based management typically also improves internal cooperation between units and overall results.
In ABC classification, products (or customers) can be grouped, for example, based on revenue or turnover, allowing for the application of the most appropriate measures. Different categories have varying significance for the company’s profitability, which should be reflected in the measures and resources allocated to them. In management, the goal is to sell more to strong customers, while weak customers should be thoroughly analyzed. ABC costing is utilized in this analysis.
ABC costing + ABC classification together provide an excellent foundation for improving profitability, quickly and transparently!
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