Activity Based Costing (ABC) is a method that assigns overhead costs to products based on their use of resources rather than traditional allocation methods. It provides managers with more accurate cost information for strategic decisions by assigning both manufacturing and non-manufacturing costs to products using multiple cost pools and allocation bases that differ from traditional costing systems. Under ABC, products are charged only for the costs of the capacity they actually use rather than being allocated costs of unused or idle capacity like in traditional cost accounting.