About this paper
Translating expenses into calculated costs using a cost-tracing approach is foundational to activity-based costing (ABC). Yet even when an organization adheres to strict accounting practices and principles, there can be problems with this method. For example, how appropriate are the selected drivers, and how accurately do they model costs proportionately to reflect an organization's actual consumption of expenses? This white paper describes this problem and illustrates how and why correlation analysis resolves it.