Activity Based Management Essay

'How do the main functional areas of a business interact and contribute to its effective management?'

Activity-based costing can be defined as the managers allocate costs depending on the quantity of resources a product or service consumed in the manufacture of goods and services. The activity based

Analysis – An analysis was carried to understand if there is a relationship between the

Activity-based costing is a system of accounting that puts emphases on activities performed to produce products or services (Schneider, 2012). In this costing system every activity is assigned a cost (Schneider, 2012). The goal of activity-based costing is not to allot common costs to products but to measure and then price out all the resources used for activities that sustain the production and delivery of products and services to customers (Mazumder, 2007). Activity-based costing is a cost system that is useful in business because of the fact that it does account for the cost of the products, resources used to produce the product and delivery of the product.

* What organizational structure, management processes, and philosophy will foster superior performance from the company’s business units?

We evaluated our company’s position in the industry, and found ourselves in an excellent starting position to further develop our products and match them to the industry’s needs. Our market share is adequate and we can advance further with our strategy improve and reposition our products in the coming years. We have underutilized capacity, which we intend to improve, while increasing automation to reduce costs. We have plans to improve our promotion to improve product awareness and with the appropriate product lines we will increase price to improve margins and better align our high-end product image. Our current financial position is optimistic, showing our leverage (Assets/Equity) at 2.0, when our goal is to maintain 1.5-2.0 overall. By utilizing the analysis tools we are learning what elements are driving demand, how to effectively tailor our products through R&D, how best to adjust our marketing and pricing, while lowering input costs, in order to improve margins and to ensure our stakeholders are all satisfied.

The company is profitable. However, management has become concerned about the profitability of the customers in its three customer-size categories—large, medium and small. Different customers demand different levels of support. Management has no basis for identifying customers that generate high profits or to drop those that do not generate enough revenues to cover the expenses to support them. Under the previous accounting system, it wasn't possible to determine the costs of supporting individual customers.

Gather information about its potential and current customers, this helps to understand the customer, improve their services and make more informed decisions hence reducing risk.

1. Structural – the company needs to flatten out the management authority for better communication at all levels. The teams are lacking structure to implement TQM and understand of how it can affect quality.

The improvement of its operational efficiency through the industrialisation of processes and the pooling of resources The development of internal synergies Attracting talents and developing best practices in terms of management A constant and reinforced vigilance on risk control

Activity-based costing (ABC) methodology is an instrument designed to provide accountants and managers with valuable costing information that will allow them to make sound strategic decisions. It is used as a secondary methodology rather than a replacement for the company’s primarily costing system. The ABC methodology identifies activities in an organization and for each activity it assigns a cost. The cost reflects the actual resource consumption by each activity that has been identified.

In order for ABM to be implemented, the Company must be able to provide relevant costs information. This includes what activities the company does and the distribution of the costs i.e. administrative costs, staff costs, transportation costs etc.

ABB believes that in the long run, most costs are variable, and it "seeks to understand the forces that cause overhead costs to change over time" (Colin Drury 1998).

The unit’s readings have provided many solutions to the challenges businesses encounter nowadays. To this day, there are many companies that have business plans that concentrate strictly in lowering operating cost, cut budgets as much as possible and overwork workers that already are overworked.

ABM analyses and manages cost drivers to manage costs. In that process ABM also analyses value added and non- value added activities in order to eliminate non-value added activities and simplify or improve upon value added