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ABC refers to Activity Based Costing

Activity Based Costing is a method of allocating overhead costs. Each cost driver is assigned an estimated overhead cost. For example, let say that each time you set up for a new product it costs $100,000. We say that setup is a cost driver. If you had 7 set ups this year, then you would allocate 7 x $100,000 or $700,000 to estimated overhead costs.

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