Activity Based Costing (ABC), a cost allocation method.
With Activity Based Costing you clearly identifies what your products and services are, what the activities are in your organisation and what resources are consumed by these activities. When linking your products to the needed activities you create a logical insight between your products and costs.
With this result you can identify what products exactly causes what costs, what activities are value adding and non-value adding.
Activity Based Costing helps you with:
Identifying profitable and non-profitable products and services.
Outsourcing or Off-shoring decisions of specific activities to make products and services profitable again.
Process (re)design initiatives, especially to built the business case and to calculate the effect afterwards.
Budget and charge out calculations.
Automation decisions and the expected costreduction (what activities and related costs will really disappear?).
Capacity planning, if you implement for certain area's a cost-pull model. You will be able to calculate the impact on your capacity and and related costs of expected growth of specific product.