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Activity-based cost model

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The solution discusses an activity-based cost model.

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Activity-Based Cost model breaks costs by activities rather than organizational units. It is used as a means of identifying opportunities to improve business process effectiveness and efficiency.

Activity-Based Cost model uses cost drivers to assign the costs of resources to activities and unit cost as a way of measuring an output. Unit cost is the "average total cost" of producing one unit of output. It is calculated by dividing the total cost of production by the total number of units of output produced.

For example, if an automobile manufacturer produces 100 vehicles for a total cost of $1,250,000, then the cost-per-unit (vehicle) is $12,500.

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