Abstract: In competitive market now a days, organizations should present high quality and in time products and services for satisfying customers and increasing their market share. Diversity of product and customer needs have the organizations to devolve some of their activities to suppliers so that they can respond their customers needs. The main problem in activity based costing is conducting and controlling these activities. This study deals with supplier selection and determination of order quantity by Activity-Based Costing (ABC) and Total Cost of Ownership (TCO) concept which explain the cost caused by supplier more accurately than traditional cost accounting.