Attributes define and describe activities and, at the same time, become the basis for activity
classification. Activity classification facilitates the achievement of key managerial
objectives such as product or customer costing, continuous improvement, total quality
management, and environmental cost management. For example, for costing purposes,
activities can be classified as primary or secondary. A primary activity is an activity that
is consumed by a final cost object such as a product or customer. A secondary activity
is one that is consumed by intermediate cost objects such as primary activities, materials,
or other secondary activities. Recognizing the difference between the two types
of activities facilitates product costing. Exhibit 4-8 indicates that activities consume resources.
Thus, in the first stage of activity-based costing, the cost of resources is assigned
to activities. Exhibit 4-8 also reveals that products consume activities—but only
primary activities. Thus, before assigning the costs of primary activities to products, the
costs of the secondary activities consumed by primary activities must be assigned to the
primary activities. Many other useful activity classifications exist. For example, activities
can be classified as value-added or non-value-added (defined and discussed in detail in
Chapter 12), as quality-related (discussed in Chapter 14), or as environmental (discussed
in Chapter 16). In designing an activity costing system, the desired attributes
and essential classifications need to be characterized up front so that the necessary data
can be collected for the activity dictionary