Activity-based costing is A PART of Activity-based management. Management uses the findings of activity-based costing to see the cause-effect relationship between activities and costs. And also by using activity-based management techniques, they find ways to reduce or eliminate non-value-added activities. Activity-based management is essential for companies who wish to strive for continuous improvement to maintain [...]
Introduction: Economic value-added (EVA) has increasingly gain acceptance amongst many top-notched organization. This performance metric for creating shareholders wealth is closely tied with the Value Based Management as they share the same principle of realigning business practices towards increasing shareholder value. Formula: In simple term, EVA is:
In earlier Part1, we understand the importance of Cash Flow Statement. This Part 2 explains what’s in a Cash flow Statement:- Basically The Cash Flow Statement comprises the following: Closing Cash Balance (a) Opening Cash Balance (b) Net Change of Cash Balance ( c ) = (a-b) ( Cash balance also includes cash equivalent(refer to [...]
To understand the true creation of shareholder value, we should not solely rely on accounting earnings/profits as it can be manipulated by overzealous aggressive top management. We need to be vigilant about accounting earnings vs cash. The basic essential is that we need to appreciate Cash Flow Statement. This article is of 2 parts- this [...]
To create shareholder value, it is crucial to differentiate Profit and Cash. Failure to understand this simple principle will cause serious repercussion to the financial health of the company . Don’t just believe that if a high profitable company must always has a lot of cash or is a very liquid company. Remember that Profit [...]
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Activity based costing is nothing new but it has been recently been catching up due to many who starting to perceive the inadequacy of using the normal traditional methods. Append below is a listing of all articles pertaining to activity-based costing: Principles of Activity-based costing An overview approach of Activity-based costing Shortcomings/Limitations of the traditional [...]
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Some managers or readers who are assigned to build up an activity based costing system might be at a loss on how to even embark on this assignment. To do it, please look at the earlier articles on steps, conditions, factors,etc are provided. In this article, the overview approach is given to implement the activity [...]
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As managers, we always try to relate the overheads costs by APPORTIONING to the various cost centres. Remember that activity based costing is basically a ” one-step attribution system” as costs are NOT APPORTIONED between activities-the costs of each activity are RELATED DIRECTLY to products. Cost attribution is the process of relating cost to cost [...]
This article deals with some of the terms used in Activity-based costing. In an Activity-based costing system(ABC), the term allocation base is replaced by the term activity measure, and the term cost driver is also used. The two types of activity measures are : Transaction driver – a simple count of the number of times [...]
Earlier, we have describe the shortcomings of traditional costing systems but do you know that activity based costing like all other systems too has it limitations or constraints. As managers, we need to at least understand some of the following limitations of ABC:- Requires management to estimate costs of activity pools and to identify and [...]
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