Activity Based Costing in a Non-manufacturing Organization

Activity-Based Costing, a fundamental principle of managerial accounting is presented specifically in a manufacturing or production based environment. It is easier to understand and teach it this way because manufacturing environments lend themselves to easy applicability of the principles of ABC. There are distinct steps in a process, and fairly easily separable costs for each process. In a non-manufacturing organizations (NMO), the task becomes much harder. How for example, do you value the steps in making a sale? Obviously, certain activities, particularly marketing campaigns are easier to evaluate as they have distinct sets of activities and easily defined costs.

In my opinion, the best way to evaluate NMO activities is to take a page from project management, and break down an overall project into component activities, and look at the hours used in the process as a per-hour cost. So, in a knowledge-based NMO, costing is focused on worker productivity and pay. The hard part is quantifying the benefits of say me blogging... thats a post for another day, today was cost day!