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 or obtain a competitive advance. Activity-based management focuses on the activities involved in the production/performance process as the way to improve the value customers receive and the profit the company realizes.
Basic notes on activity-based management:
- ABM helps to increase the company’s efficiency and effectiveness and Compute more accurate costs
- Is closely related to total quality management and business process reengineering.
- Activity-based management should incorporate strategic planning and company’s cost management system
- ABM requires an analysis of the company’s activities ( like movements, work sequences that a company performs to fulfill business function.)
- Activity-based management concepts also emphasize on the relationships among function areas.
- ABM & ABC promote continuous improvement, reduce lead times, and enhance flexible manufacturing by helping managers to
(a) Recognize and monitor major technology costs
(b) Trace many technology costs to products
(c) Increase market share through target costing
(d) Identify cost drivers
(e) Identify non-value-added activities
(f) Understand the effect of new technologies on all aspects of performance
(g) Translate company goals into activity goals
(h) Analyse performance of activities across business functions
(i) Analyse performance problems and
(j) Foster standards of excellence
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