In activity based costing revenue is allocated directly to cost objects. This enables the costs as well as the profitability margins to be determined. This differs from the other cost line types that can be allocated to Tertiary pools, Secondary pools, Primary pools and / or Cost objects.
Revenue can be allocated to any of the income producing end products and can be linked to general ledger codes if desired.
To make a profit, the revenue returned by a product or service must exceed its cost. Thus the accuracy with which you can determine true costs will influence the degree of profitability possible.
Profit analysis is a key benefit of using ABC costing methodology with included revenue allocations. It also extends the functionality of the system to activity based budgeting so that cost drivers of support activities are included.