The special consideration of activity-based costing and management are
ABC and ABM are interlinked as information collected in ABM are related to information collected for ABC. For example, ABC focuses on reducing cost drivers by optimizingthe use of given recourses. At the same time, ABM looks into business activities and processes that are important in achieving pre-determined goals.
ABC and AMB are management tools that help improve financial strength and profitability by managing operational activities.
Sometimes ABC is difficult to allocate such costs as management and staff salaries, while in the ABM system, it is easy to look into these activities individually.
The objectives of activity-based costing and management are
Activity-based costing and management bring more accuracy in the business by calculating cost drivers for each cost pool activity and looking into every department for growth and elimination.
These give detailed information for each activity through transaction and duration drivers as these help with the frequency and the duration of the activity performed.
It helps with the measurement of profitability based on performed activities.
It helps the management in decision-making by providing the cost and other information related to every individual activity.
If a business is having a complex procedure of activities, then activity-based costing and management help in the analysis.
It helps to increase the activities related to customers and increase the demand for the product in the market. Also, it helps in eliminating those activities that are not getting performed well and creating an unnecessary cost to the business.
Cost pool volume- As cost pool related to the allocation of individual cost to the activities. When a business has lots of activities and costs, this process is difficult to perform and time-consuming.
Multi-department data sources- Activity-based costing and management acquire data from multiple departments, and sometimes department has other priorities than getting evaluated on ABC and ABM. In this situation, the calculations do not show accurate results. To avoid this situation, management can focus on important departments only.
Reporting unused time-While calculating time spent on each activity or allocating time on each activity does not include unused time. Unused time is basically when employees are involved in other activities rather than work such as, break, playing games, and chit-chats with other employees, which shows miscalculations while measuring the accurate time.
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