Activity costing is a method of calculating the cost of specific activities performed in a business.

Simple Meaning:

It means finding out how much each business activity costs.

How It Works:

Identify an activity (e.g., machine setup, inspection, packaging)

Calculate all costs related to that activity

Determine the total cost of performing that activity

Example:

If machine setup costs ₹50,000 per month and 100 setups are done, the cost per setup is ₹500.

Purpose:

To understand where money is being spent

To improve cost control

To support better pricing decisions

In short, activity costing focuses on measuring the cost of each activity separately.