“Activity-Based Costing (ABC) arose in the 1980s from the increasing lack of relevance of traditional cost accounting methods. The traditional cost accounting methods were designed around 1870 – 1920 and in those days industry was labor intensive, there was no automation, the product variety was small and the overhead costs in companies were generally very low compared to today. However, from the 1960s – particularly 1980s – this changed rapidly. Activity Based Costing is based on a simple principle: activities consume resources and customers consume activities. Associating the labor and overhead expenses of the business with the activities that consume those resources provides valuable facts. ABC defines categories of activity in overhead departments, which on the one hand are recognizable to overhead department managers but, on the other hand, are driven by factors (cost drivers) which are characteristic of products and other cost objects. This allows a much higher proportion of total company cost to be allocated to products according to causation. Ultimately, ABC provides accounting data points that can be used to improve decision-making and identify cost improvement opportunities. The basic building blocks for ABC are activity accounting spreadsheets for each element of a business. The workload of each activity is measured resulting in a cost per output. ”