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This video shows how to perform profitability analysis using activity-based costing.

Many companies serve a variety of customer types. By calculating the profitability of each type of customer, the company can determine which customer types are the most profitable and whether some customers are unprofitable. The profitability of a customer type is determined by charging direct (traceable) costs to the customer type and then allocating indirect costs to the customer type using activity-based costing.