What is the primary objective of Activity Based Costing?

The primary objective of Activity Based Costing (ABC) is to improve product costing and identify non-value adding activities. ABC is a costing method that assigns overhead and indirect costs to specific activities related to the production of goods or services. This approach allows organizations to determine the true cost of each product or service by focusing on the activities that contribute to those costs.

By utilizing ABC, businesses can gain insights into which activities are essential for adding value to their products and which activities do not contribute to value, thereby identifying areas for potential cost reduction. This understanding enables organizations to make informed decisions about resource allocation, pricing strategies, and process improvements.

The other options, while possibly beneficial outcomes, do not directly capture the primary aim of ABC. Enhancing employee productivity and streamlining supply chain management may be results of optimized processes influenced by ABC insights, but they are not the core focus of the costing method itself. Similarly, improving financial reporting is more about how financial data is presented rather than the fundamental purpose of ABC, which is rooted in accurately capturing costs related to activities.