Recently, Activity-based costing (ABC) is defined as a methodology that measures the cost and performance of activities, resources, and cost objects. Specifically, resources are assigned to activities, then activities are assigned to cost objects based on their use. ABC recognizes the causal relationships of cost drivers to activities (Institute of Management Accountants, 1998). In other words, the objective of activity-based costing is to understand the causes of overhead costs and to identify the real probability of products and customers. Moreover activity-based costing purpose is allocation of indirect costs based on causal activities.

Meanwhile, there are three important characteristics of ABC: 1) Simple traditional distinction made between fixed cost and variable cost is not enough guide to provide quality information to design a cost system. 2) The more appropriate distinction between cost behavior patterns are volume related, diversity related, events (decisions) related and time related. 3) Cost drivers need to be identified. A cost driver is a structural determinant of cost related activity. The logic behind is that cost drivers dictate the cost behavior pattern. In tracing overhead cost to product, a cost behavior pattern must be understood so that appropriate cost driver could be identified.

In addition, ABC have different structure ranges, such as multiple product, complex product, complex production system and significant variation in volume between high and low volume products.

On anther hand, Activity-based budgeting (ABB) focuses on the costs of activities that are used to produce and sell products and services, rather than focusing on the functional department costs, as in traditional costing. In addition, Activity-based budgeting is that involves quantitative expression of the activities process of the organization reflection forecasts