Fill in the Blank QuestionFill in the blank question.In order for a service provider to use activity-based costing, they should classify costs by level.

In order for a service provider to use activity-based costing, they should classify costs by activity level.

Activity-based costing (ABC) is a managerial accounting method that identifies and assigns costs to overhead activities and then assigns those costs to products. This system encourages organizations to identify all activities within their processes and categorize them into different levels: unit-level, batch-level, product-level, and facility-level costs. By classifying costs based on these activity levels, a service provider can accurately determine the costs associated with specific services or products, leading to more precise pricing, better resource allocation, and enhanced strategic decision-making.

This method goes beyond traditional costing methods by focusing on the cause-and-effect relationship between cost and the activities that incur them, thus providing deeper insights into operational efficiency and profitability.