Activity-Based Costing (ABC) is a method used to allocate costs to products and services based on the activities that drive those costs. Instead of spreading costs evenly across all products, ABC identifies specific activities, such as manufacturing, marketing, or customer service, and assigns costs based on the actual consumption of these activities. This approach provides more accurate cost information, helping businesses understand the true cost of their products. By analyzing the costs associated with each activity, companies can make better decisions regarding pricing, budgeting, and process improvements, ultimately leading to increased profitability and efficiency.