Activity Based Management Essay

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.

Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead.

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

3. Analyses of the value proposition and markets: Profitability of the various provincial markets or product lines is analyzed.

Recommendation – To improve revenues and margins, the company will have to increase the revenue contribution of every product category. I recommend that the company go into its customer requirements and see if it can cross sell product items, so that it can get more revenue from each customer. This will ensure that the company is able to offer competitive prices to customers and grow its business using its existing customers.

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.

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

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.

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.

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

An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx,

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.

C. T. Horngren, A. Bhimani, S. M. Datar, G. Foster (2005), 'Activity-Based Costing', Management and Cost Accounting (Prentice Hall Europe), 345-363

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.

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