In an ABC overhead allocation method, what are the different measures of activity called?

In an Activity-Based Costing (ABC) overhead allocation method, the different measures of activity are referred to as cost drivers. Cost drivers are the factors that cause overhead costs to be incurred. They serve as the basis for allocating indirect costs to products or services based on the actual activities that consume resources. For example, in a manufacturing context, cost drivers could include machine hours, labor hours, or the number of setups required for production. By using cost drivers, companies can achieve a more accurate allocation of costs, which can lead to better decision-making and pricing strategies.

The other options do not represent measures of activity in the context of ABC. Total manufacturing costs encompass all costs involved in the production process but do not specifically relate to measures of individual activity. Direct labor and direct materials are categories of direct costs that can be traced directly to products, but they do not account for the indirect costs associated with overhead allocations that ABC aims to address. Therefore, identifying cost drivers is crucial in effectively utilizing the ABC method to allocate costs accurately based on the consumption of resources.