So, over time, we have realized that the cost of a product is heavily influenced by the amount of overheads incurred.

In any business, there are several activities (and hence related costs) that are necessary to make product/s or provide service/s, and these activities and their related costs are not captured adequately (or at all) by the traditional, volume-based costing system that simply allocates costs based on only one factor such as direct labor hours, total direct labor cost, or machine hours used by each product. The result is that some products get charged too much overhead cost without actually using the overhead resources while other products do not get charged enough of the overhead cost although the latter category of products may be using more of the overhead resources.

For example, if in your business most of the overhead cost is caused (or driven) by the use of machines and yet if you allocate overhead based on direct labor hours, then the products that are labor-intensive will bear a greater burden of the overhead cost without actually using much machine time.

Activity-based costing (ABC) recognizes that drawback of the traditional system and takes into account the role of these different activities in the completion of each product or service. ABC assigns costs to different products and services based on the actual amount of different resources or activities consumed by each product.

In this context, is there a difference between "cost incurred during the year" and "resources used by products or services during the year"? If yes, what would be one example of that?