What is the main focus of activity-based costing?

Activity-based costing (ABC) primarily focuses on assigning costs based on activity consumption. This method recognizes that activities consume resources and that costs can be traced to products or services more accurately by identifying what activities are required to produce them. Instead of simply allocating costs uniformly across all products or services, ABC scrutinizes the actual activities involved in the production process and assigns costs according to the specific usage of those activities.

This approach helps businesses gain a better understanding of the true cost and profitability of their products or services, allowing for more informed decision-making regarding pricing, product line management, and the identification of inefficient processes that may need improvement. By focusing on the activities that drive costs, organizations can strive to optimize their operations.

The other options are related to cost management but do not capture the core principle of activity-based costing. Minimizing direct costs alone overlooks the nuances of indirect costs that ABC addresses. Determining fixed costs accurately is important, but ABC specifically emphasizes the relationship between activities and costs rather than just allocating fixed costs. Implementing budget control measures is a critical aspect of financial management, but it is not the defining feature of ABC, which is more about understanding cost behavior in the context of activities.