What type of activities does Activity Based Costing focus on eliminating?

Activity Based Costing (ABC) primarily focuses on identifying and eliminating non-value adding activities within a business. These are activities that do not contribute to the production of a product or service from the perspective of the customer. By concentrating on non-value adding activities, ABC helps organizations to streamline processes, reduce unnecessary costs, and enhance overall efficiency.

In practice, eliminating these activities allows organizations to focus their resources on value-adding processes that directly contribute to customer satisfaction and the quality of the service or product offered. This can lead to improved profitability, as resources are allocated more effectively and costs are reduced without sacrificing value to the customer.

Value-adding activities, on the other hand, are essential for creating customer satisfaction and should not be eliminated. Customer service activities play a crucial role in maintaining relationships and addressing customer needs, which can be seen as value-adding. Overhead management activities, while necessary for operational efficiency, can involve both value-adding and non-value adding processes, and thus are not the primary focus of ABC. The methodology aims to refine operations primarily through the lens of value creation, underscoring the significance of eliminating activities that do not contribute positively to that goal.