This study stresses the importance of knowing the true cost of a process, product or service; offers a basic overview of activity-based costing and activity-based cost management; evaluates the benefits offered by activity-based costing; offers a comparison of ABC to traditional cost system, and an analysis on how ABC does compute more accurately. The focus is on the use of activity-based costing and activity-based cost management in a military dispensary to increase management's ability to track indirect costs and thereby to provide more accurate data for evaluating results. The overhead is allocated on a more accurate basis among the clinics of the military dispensary. Indirect costs are made direct by using activity based costing system. The true costs of 10 clinics of the dispensary are revealed throughout this study and, a comparison with private clinics’, and a relative savings table of military clinics are presented. Limitations are defined and recommendations are made for future investigations and implementations.