In activity-based costing, organization-sustaining costs should not be included in product costs for internal management reports that are used for decision-making. However, companies frequently include organization-sustaining costs in product costs to satisfy external reporting requirements.

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Organization-sustaining costs are costs that are required to sustain the overall business, but are not directly tied to a specific product or service. These costs should not be included in product costs for internal decision-making purposes because they can distort the true cost of producing a product. However, companies may include these costs in product costs for external reporting purposes, such as meeting GAAP requirements.

In Activity-Based Costing, Organization-Sustaining Costs Should Not Be Included in Product