What is the main objective of Activity Based Costing?

The primary objective of Activity Based Costing (ABC) is to identify and analyze non-value adding activities within an organization. This method focuses on understanding the costs associated with specific activities and processes, which helps businesses discern where they are incurring unnecessary expenses or where resources might be allocated inefficiently. By identifying these non-value adding activities, managers can streamline processes, reduce waste, and enhance overall operational efficiency.

Activity Based Costing moves away from traditional costing methods that tend to allocate overhead more broadly. Instead, it provides a more detailed perspective on how resources are consumed by various activities, allowing organizations to focus on processes that truly add value and eliminate those that do not. This cost management approach is particularly useful for continuous improvement initiatives and strategic decision-making.

The other options, while relevant in different contexts, do not align with the core objective of ABC. Improving assembly line efficiency may be a beneficial outcome, but it is not the primary aim of Activity Based Costing itself. Similarly, providing advertising cost estimates and reducing employee turnover pertain to specific functional areas and practical challenges within a business, rather than the overarching focus on cost behavior and activity analysis inherent in Activity Based Costing.