Posts Tagged ‘Activity-Based Management’


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 […]

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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 […]

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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 […]

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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 […]

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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 […]

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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 […]

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Defining Business Activities for Activity-Based Cost

One requirement when creating an Activity-Based Cost model is defining activities. A few simple criteria help the new model builder accomplish this requirement. However, the actual activity definition is the lesser consideration at this stage of model building.

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The Activity Dilemma in ABC: Conflict Between Process and Task

An activity is an essential link between what a business spends on its resources and what it delivers as products and services to customers. Activities are the work performed by employees. This link can be viewed as a stepping stone on a path the business follows to add value as it converts inputs into saleable […]

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Gross Margin: A Concept Not So Gross

Frequently we hear the question, “How do we allocate Management to product cost?” The person posing the question is going down their company’s chart of accounts and attempting to allocate every account to product cost. This person is typically implementing Activity-Based Cost or ABC and wants a Fully Absorbed Cost.

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Beware the Business Death Spiral

Today’s economic environment is constantly changing. While a lot of press is devoted to the global recession, reality is that the competitive environment for any business is constantly changing. Even within the business’s product portfolio, products are at different points in their life cycle. With product life cycles constantly and dramatically shortening, how do managers […]

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