Describe the basic principle of activity-based costing (ABC).

Solution:The basic principle of ABC is the allocation of costs to cost units (e.g. individual products) in accordance with the causing of that cost by the unit or the benefit derived from the cost's incurrence. ABC allocates costs using COST DRIVERS. Its objective is to provide a more realistic, and more finely measured, account of the overhead cost element for a particular product or service.

Required:

In your own word, explain activity-based costing.