Purpose and benefits

ABC identifies the relationship between a business activity and all the resources needed to conduct it by assigning costs to each of those resources, thus presenting the true total expense of the entire activity.
ABC can account for so-called ‘soft’ or indirect operating costs, and thus produce a more revealing, and perhaps startlingly different, financial picture than other accounting methodologies such as standard costing might offer.
Used properly, ABC helps management better to distinguish operations that add value from those that do not, allowing it to make more informed decisions about such matters as pricing, product mix, capital investments, and organisational change.
In turn, its advocates praise ABC as a more effective tool to identify and control costs, improve productivity, and increase profits.