These activities are related to costs incurred in producing a group of units in an activity-based costing system. Examples include machine setup, quality tests and maintenance.
Activity-based costing provides more in-depth information with regards to the costs incurred on manufacturing a group of product units when compared with traditional volume-based costing as traditional cost accounting ignore sales-related costs and as a result it has a tendency of providing misleading information regarding profitability of products, customers, product lines, and markets.
Activity-based cost accounting system assists its users in accurately classifying overhead costs at the batch level when compared with the conventional cost accounting systems. This cost system also assists the manufacturers in determining the breakeven point with respect to costs incurred by the manufacturer through the cost-volume profit analysis. This aids the managers in identifying activities that does not add value in addition to highlighting process inefficiencies, and factors that can play a key role in increasing profitability.