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Activity-Based-Costing System In Relation To Activity-Based-Management (ABM)
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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
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Product Pricing and Mix Decisions
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- 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.
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Cost Reduction and Process Improvement Decisions
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- 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.
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Design Decisions
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- 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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