The significance of overheads and the ABC method of charging costs Since ABC is a cost apportionment system, it is principally beneficial when there is a high proportion of overhead costs – if a business incurs only direct costs, there is no issue for ABC to resolve. ABC is based on the premise that it is activities that lead to costs being incurred and that costs should, therefore, be apportioned on the basis of those activities. Cost drivers are then chosen that reflect the events that create costs when the activities are undertaken. These costs are then collected into cost pools where there are common cost drivers. Finally, products are allocated costs on the basis of the activities they use.
