The diagram shows that ABC starts with identifying resources in the organization, which usually signify the materials, machines, and the people needed. After resource identification, it will later lead resource cost assignment procedure. It symbolizes the resource cost drivers that are useful in determining how each resource needed for every activity will be performed. It will lead to the activities to be defined, representing the action or process the organization will embark on the undertaking. It will lead to each activity to have an activity cost assignment that will represent each product’s activity drivers, which will decide how each object will utilize their activities. The final part of ABC represents the cost objectives, which signify the end product’s final destination.
ABC’s main advantage is that it provides better product line costing to managers, mostly where an organization has diverse product lines, and there is significant existence in non-volume related overheads. (Chouhan, Soral & Chandra, 2017) states that ABC’s application enables businesses to identify and understand cost behavior, which will improve cost estimation for businesses. ABC adoption will present better information that will use in determining the cost of non-utilized capacity. Furthermore, ABC will give more customer profitability and accurate product, which will lead to managers making better-informed decisions. ABC is also crucial in ensuring that it supplies information that will identify the areas in an organization where process improvement is required, which is accomplished by using the ABM principles.