44 6.6 Using Activity-Based Management to Improve Operations
-
-
Last updated
- Dec 28, 2020
Learning Objectives
- Understand the concept of activity-based management.
Question: Activity-based costing is helpful in providing relatively accurate product cost information. However, the value of activity-based costing information goes beyond accurate product costing. When activity-based costing is used in conjunction with activity-based management, organizations are often able to make dramatic improvements to operations. How does activity-based management help an organization reduce costs and become more efficient?
-
-
Key Takeaway
Activity-based management provides a three-step process that shows management how to use the cost information obtained from an
Business in action 6.3 – Why Use Activity-Based Costing (ABC) and Activity-Based Management (ABM)?
A survey of 296 users of activity-based costing and activity-based management showed that the top four objectives of using ABC and ABM were as follows:
- To provide product costing (58 percent)
- To analyze processes (51 percent)
- To evaluate performance (49 percent)
- To assess profitability (38 percent)
All these objectives are important to most organizations and can be achieved with the help of ABC and ABM systems.
Source: Mohan Nair, “Activity-Based Costing: Who’s Using It and Why?” Management Accounting Quarterly, Spring 2000.
Review problem 6.4
Label each of the following activities as value-added or non-value-added:
- Placing customers who call to order a pizza on hold
- Assembling desks to be sold to customers
- Storing raw materials to be used in production the next month
- Designing a car to maximize comfort
- Scrapping defective production materials
- Waiting for a phone call from a customer
- Moving raw materials from one end of a factory to the other
Definitions
- A management tool that uses cost information obtained from an ABC system to improve the efficiency and profitability of operations.
- Activities that add to a product’s quality and performance.
- Activities that do not add to a product’s quality and performance.
