Activity-Based-Costing System In Relation To Activity-Based-Management (ABM)

Activity-Based-Management describes management decisions that use activity-based costing information to satisfy customers and improve profits.

Some areas involved:

• Product pricing and mix decisions

• Cost reduction and process improvement decisions

• Design decisions

Product Pricing and Mix Decisions

• ABC gives management insight into the cost structures for making and selling diverse products.

• It provides more accurate product cost information and more detailed information on costs of activities and the drivers of those costs.

Cost Reduction and Process Improvement Decisions

• Manufacturing and distribution personnel use ABC systems to focus on cost reduction efforts.

• Managers set cost-reduction targets in terms of reducing the cost per unit of the cost-allocation base.

Design Decisions

• Management can identify and evaluate new designs to improve performance by evaluating how product and process designs affect activities and costs.

• Companies can work with their customers to evaluate the costs and prices of alternative design choices.

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