From the course: Activity-Based Costing
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Define the cost objects
- Now, you might be wondering whether activity-based costing can only be applied to something that's physical or tangible, say, like a toy or clothing. Certainly the term cost object kind of suggests that ABC does only apply to manufactured products. But don't be confused. Despite its manufacturing origins, ABC can be applied in exactly the same way to a services-based business as it is to organizations that are product-based. So, what exactly is a cost object? Well, a cost object is an output of the business. Remember, ABC is a method of assigning overhead costs, so try to think of cost objects as the things that we are trying to allocate our overhead costs to. Some examples that I have come across in my time include the business's customers. Now, this could be either internal or external to the organization. Services delivered. For example, IT-based services, accounting services, and that type of thing. And, also, products, such as backpacks, smartphones, and the like. To help…
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