In the process of designing and implementing new strategic management initiatives, many organizations have virtually ignored the cost management system. Activity-based management is the modern accounting system which is consistent with the new initiatives like reengineering. It is an accurate management accounting system whose main focus is on business process. It results in a valuable output. There are few steps to be followed to design and implement Activity- based management (ABM).
Activity-Based Accounting System is also called Activity-Based Costing. This accounting system is similar to Business Process Reengineering (BPR) in nature. Business process reengineering is a management tool which is used to obtain improvement in performance measures such as cost and quality. In this process the whole aspects of process are redesigned and its main focus is on processes rather than functional tasks where as activity-based costing along with that have an additional feature that is analysis of the cost management system. It is a system where we can accurately find the cost of full services and products, cost of core activities, and other cost objects.
Activity-based management consists of two view points.
One is Cost View that is it is an accurate accounting system and second one is Process View which is a performance evaluation tool. The advantage with this is same information can be used for accomplishing both the goals that is both the views. It is more concerned with planning and controlling. It consists of two stage process.
- In the first stage, costs of the resources are assigned to activities and after the tasks are performed the outputs are grouped into activity centers.
- In the second stage, the costs of activity centers are traced to cost objects. In both the stages, the bases of assigning the costs are cost drivers.
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