Activity-based costing is:

A) the process of identifying all activities and relating these activities to the events, circumstances, or conditions that create or drive the need for the activities and the resources consumed.
B) a method of determining the most favorable decision alternative by using activities as the basis on which to build the cost proposal.
C) an approach to cost assignment in which all operating activities are identified, costs are accumulated by those activities, and after nonvalue-adding activities are dealt with, costs are assigned based on the appropriate activity base.
D) an approach to product costing in which most costs are eliminated.

is a way to allocate the overhead cost based on the activities that consumes resources.

The correct answer is C) an approach to cost assignment in which all operating activities are identified, costs are accumulated by those activities, and after nonvalue-adding activities are dealt with, costs are assigned based on the appropriate activity base.

Activity-based costing (ABC) is a method of assigning costs to products or services based on the activities involved in producing them. It involves identifying all the activities that take place within an organization, such as setup, production, distribution, and customer service. The costs associated with these activities are then accumulated and allocated to products or services based on the activity's usage or consumption.

The purpose of ABC is to allocate costs more accurately than traditional costing methods, which often rely on volume-based measures such as direct labor hours or machine hours. ABC recognizes that not all activities contribute equally to the creation of a product or service and that different products or services may use resources differently.

To implement ABC, the first step is to identify and define all the activities that occur within the organization. This involves understanding the events, circumstances, or conditions that drive the need for these activities. For example, in a manufacturing company, activities may include setup time, materials handling, machine processing, and inspection.

Once the activities are identified, costs are accumulated for each activity. This involves identifying the costs associated with each activity, such as labor, materials, and overhead. The costs are then assigned to the appropriate activity based on a suitable cost driver or activity base. A cost driver is a factor that causes or influences the cost of an activity. For example, the number of machine setups may be used as a cost driver for setup activities.

After non-value-adding activities are dealt with, which are activities that do not contribute directly to the creation of value for the customer, the costs are assigned to products or services based on their usage or consumption of the activities. This allows for a more accurate allocation of costs, as products or services that consume more of a particular activity will be assigned a higher proportion of the costs associated with that activity.

In summary, activity-based costing is an approach to cost assignment that involves identifying all operating activities, accumulating costs by those activities, and assigning costs based on the appropriate activity base. It provides a more accurate way to allocate costs than traditional costing methods based solely on volume measures.