The ABC (Activity Based Costing) is a method of classifying a repository in descending order of output. Considering the widely accepted fact, that about 20% of the references account for 80% of sales. In an analysis it is important to attach high priority to these references. The ABC method enables a more detailed analysis than the simple calculation of cost.

The ABC method: Definition

The ABC method can be defined as follows: the cost objects (products, customers ...) consume activities that themselves consume resources. 

The ABC method: Principle

The ABC method follows the following principle: the repository is divided into three groups:

• Group A consists of references constituting 80% of output (typically representing 20% ??of references)
• Group B consists of references constituting 15% of output (typically representing 30% of references)
• And Group C consists of references constituting 5% of output (typically representing 50% of references)

The ABC method is used to find references that deserve special attention.

The ABC method: Calculation Steps 

The various steps for the establishment of a process and the ABC method are:

• Define activities: These activities can be, for example: order processing, reference handling, or receipt of goods;
• Identify the indirect costs that will be restated;
• Linking loads and activity: in most cases need to because the allocation charges are often compared to direct operations;
• Linking the activities and products: For each activity, a cost driver (cost driver) will be retained and monitoring (e.g., the number of orders, the reference quantities). This inductor is the unit that will distribute the total cost of the activity. Some drivers will not be used to avoid too heavy models. We prefer a typical inducer of the activity. Studied for each activity, specify the model so the drivers consumed. 

The ABC method: Advantage

The ABC method has the advantage of more accurately allocate costs to products without an allocation of indirect costs using a unit of measurement often arbitrary (e.g., machine hours). A better understanding of the processes used to identify the strengths and weaknesses of an organization in the implementation of this method. 

The ABC method: Disadvantage

The ABC also has the disadvantage of requiring the intervention of outside specialist's long, active involvement of staff and the use of expensive solutions to be implemented.

In a more general, we use the ABC method implemented in the field of safety and quality by saying that a small number of causes may be the cause of a majority of defects. 
Analysis by ABC method has the advantage of allowing visualization of faults and especially after an action to improve the quality, see the results, the gains, that is to say, the overall progress.