Activity-based costing is a totally different way of thinking.
Traditional costing techniques are now rapidly being replaced by activity-based cost accounting. Traditional costing builds cost from the bottom up—labor, material, and overhead. It concentrates primarily on manufacturing-related costs, the so-called inventoriable costs. Activity-based costing starts from the end and asks, “Which activities and related costs are used in carrying out the complete value chain of activities associated with the cost object?” Activity-based costing includes the cost of quality and service.
By designing quality into products and services during the design stage, design costs may increase, but warranty and service costs ...
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