Product costing, with ABC

In working with these manufacturers, we kept to the basic concepts of activity-based costing. We avoided ABC jargon as much as possible and developed our models using spreadsheets instead of special ABC software. We emphasized the ideas that (1) costs are incurred because an organization performs activities, (2) those activities are performed because the organization makes and sells products, (3) activity-based costing first relates those costs that cannot be directly attributed to specific products to the activities that make the costs necessary, and (4) it then attributes the accumulated costs of the activities to the products that make the activities necessary. Cost to activities — activity costs to products. 

The measurements classically used for an ABC analysis in this context are, for example, purchasing volume, the characteristics of the supplier with regard to technological, qualitative or financial matters, as well as the strategic importance of the supplier. However, Gelderman and van Weele (2005) criticize the fact that, due to the exclusive concentration on financial value, ABC analyses lack the treatment of costs associated with weak product performance. 

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