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First of all, let us understand what ABC accounting is.ABC stands for Activity Based costing. It is a form of inventory management technique that helps in determining which products to manufacture based on its demand, supply, risk, and other factors. ABC analysis helps to analyze which product is important and can lead to the financial success of the business. Activity-based costing or ABC analysis is related to but not similar to an ABC analysis used in managing and tracking inventory through FIFO, LIFO, or any other method. Here, for instance, activity-based costing is utilized in manufacturing by accountants as a way of allocating overhead costs toward products and services.

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