Certified Professional Contract Manager (CPCM) 2026 – 400 Free Practice Questions to Pass the Exam

The primary focus of an activity-based costing (ABC) system is to assign costs more accurately based on the actual consumption of resources by specific activities. This methodology recognizes that overhead costs should not be distributed uniformly across products or services but rather allocated based on the activities that contribute to those costs. By linking costs directly to the activities that generate them, an ABC system provides a clearer, more precise understanding of where resources are being consumed and how they relate to production, enabling better decision-making and cost management. This approach helps organizations identify non-value-added activities, streamline processes, and ultimately improve financial performance.

The other options, while relevant in various business contexts, do not encapsulate the essence of activity-based costing. Tracking all expenses is part of broader financial management, improving employee productivity involves different strategies, and minimizing inventory costs pertains to supply chain management rather than directly addressing cost allocation based on activities.