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Difference between ABC and ABM
The ABC refers to the technique for determining the cost of activities and the output that those activities produce. It is the logical distribution of overhead i.e. overhead should be distributed on the consumption of resources consumed by goods and services. The aim of ABC is to generate improved cost data for use in managing a company’s activities.
The ABC refers to the technique for determining the cost of activities and the output that those activities produce. It is the logical distribution of overhead i.e. overhead should be distributed on the consumption of resources consumed by goods and services. The aim of ABC is to generate improved cost data for use in managing a company’s activities.
The ABM is a much broader concept. It refers to the management philosophy that focuses on
Benefits of Activity Based Cost Management
(i) Provision of excellent basis and focus for cost reduction.
(ii) Provides operational management with a clear view of HOW to implement an Activity Based budget.
(iii) Provision of clear understanding of the underlying causes of business processing costs.
(iv) Provision of excellent basis for effectiveness of management decision making.
(v) Identification of key process waste elements permit management prioritisation and leverage of key resources
It is a useful tool for many of the management decisions facing companies today. It can bring a picture of the operation to light that may not be obvious through other analysis tools. Specifically, ABC is useful in analyzing specific segments of an organization. This might include a market line, a group of products (even a single product), a customer, or an employee.
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