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ABC is crucial because it tells managers which products or services make or lose money - they usually don't know. Traditional cost allocations often depict an unrealistic, inadequate view of profitability, sometimes distorted by hundreds of percent. In most cases, ABC is designed to provide profitability information for each segment of their product/service market matrix. After learning about the specific products, services or customers that make or lose money, managers can choose an effective course of action, such as changes to price, product mix, distribution and sources of supply.
Activity Based Management (ABM) is how you use the ABC information to make decisions. What activities cost, how efficiently and effectively activities are being performed and who are the benefactors of the activities you perform, all enable you to manage what you do instead of simply how much you spend. ABC is the catalyst for process improvement and management, performance measurement, and customer/product/service optimization.
We see ABC becoming the standard economic analysis tool for all decision makers - the sooner your organization begins its ABC journey, the further ahead of the competition you'll be.
Bibliography
bjornenak.t and olson ,o
Word Count: 183
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