Activity-Based Costing (ABC) is a method used in retail that assigns costs to products or services based on the activities involved in their production or delivery.
Unlike traditional costing methods, ABC considers multiple cost drivers, such as resource consumption and activities’ intensity, to provide a more accurate and detailed understanding of cost allocation. In a retail setting, ABC helps identify and allocate costs to various activities, such as inventory management, ordering, customer service, and warehousing.
By tracing costs to these activities, retailers can determine the true cost of producing or delivering specific products. This enables better pricing decisions, cost control, and resource optimization.