Activity-based costing (ABC) assumes that activities consume resources and products consume activities. It uses the two-stage procedure to calculate the product costs: it traces the resource costs to the activities, and then traces the costs of activities to the products. In the current practice for first-stage cost assignment, effort (labor) costs are traced to the activities by the estimates of effort expended on activities, and these estimates are often derived from information gathered from interviews, questionnaires, and time cards. However, it is not objective to achieve these estimates from interviews or questionnaires. It is too time-consuming to use time cards to acquire these estimates in some situations although it is the most accurate method. The purpose of this paper is to explain how to use work sampling to estimate objectively the effort spent on activities under activity-based costing. The results of work sampling study also indicate percentages of nonvalue-added activities, which provide the best opportunities for continuous improvement.
