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A simple enough formula, but accurately collecting the financial data is the basic challenge of management account that continues today.
Activity-based costing was first clearly defined in 1987 by Robert S. Kaplan and W. Bruns as a chapter in their book Accounting and Management: A Field Study Perspective. They initially focused on manufacturing industry where increasing technology and productivity improvements have reduced the relative proportion of the direct costs of labor and materials, but have increased relative proportion of indirect costs. For example increased automation has reduced labor, which is a direct cost, but has increased depreciation, which is an indirect cost...
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