Archive for the ‘Activity-Based Cost Management’ Category


Beware Unit Cost Traps

Recently in an online cost management forum, someone contributed a story to show the danger of a particular costing methodology. However, his conclusion was misdirected. The story went something like this: There was an old baker who became ill and had to go to the hospital. His son came home from the university to keep […]

Read More...

Customer Profitability: A One Way Street

Accountants love to tick and tie numbers, and sometimes become insanely excited when their numbers balance. This insanity is to their advantage when they are providing their “Control” function. In case others reading this article don’t know, accountants have multiple roles or functions in business. One is “Control” – Make sure money and assets are […]

There’s more — Read on…

Activity-Based Cost: More Than Numbers

Activity-Based Cost or ABC has gained wide acceptance as a modern cost methodology incorporating cause and effect and cost visibility. ABC provides relevant information for management decision making. However, some have criticized ABC for a singular focus on cost and profits. This criticism is misguided. While Activity-Based Cost does have a strong cost base, it […]

There’s more — Read on...

Activity-Based Cost: Three Reasons To Avoid It

Activity-Based Cost or ABC has proven itself to be superior over traditional costing methods. Most traditional methods evolved during the early industrial age when life, while more complex than an agrarian culture, was simple. The introduction of computers and modern data processing triggered the rise of ABC giving people the power to manage data driven […]

There's more -- Read on

Three Cost Allocation Myths

Cost allocation is used in all sorts of business and government enterprises to distribute the money the entity spends to those that “deserve it”. For some, this means that cost incurred by one department should be spread between other departments that benefited from the expense. For others, this means that cost must be distributed to […]

For the rest of the story...

Fake Cost Drivers for Administrative Overhead

A recent discussion in an online cost modeling forum related to “Which cost drivers can you use to assign administration overheads to a wide product range in a manufacturing concern.” As the discussion evolved, one response said “it is best done through the driver of turnover of the product produced. … because the efforts of […]

Read More...

Fixed and Variable Costs — The Dilemma

Back in my college days, the university required two courses in economics: Macro Economics and Micro Economics. It was hard to reconcile the two courses. What is hard fact in one was flakey in the other – and vice-versa. As a student it drove me crazy.

Read More...

Business Modeling: Should It Be Precise, Accurate, Or Relevant?

In a recent professional forum, we had a great, interactive discussion about the importance of relevance, accuracy, and precision in business modeling. In this case, the business model used Activity-Based Cost principles.

Read More...

Cost Reduction: Where to Find Real Cost Reduction Opportunities

As a Financial Controller in a couple of companies, I had a lot of responsibility. In general, I fulfilled my responsibilities well. But there was always one area that I struggled with, cost reduction. In one sense, all expenses went through my organization. Payroll, we paid everyone in the facility. Fixed assets, we knew where […]

Read More...

Hidden Money in Your Business Part 4: Customer Value versus Customer Cost

In this series of posts, I have discussed powerful questions to find cost reduction or cost optimization opportunities at an activity and business process level. Then I went on to explore cost reduction opportunities in product overhead. But I have saved the best for last.

Read More...