SUMMARIES OF SELECTED CHAPTERS FROM ACTIVITY-BASED MANAGEMENT AND THE OPINIONS OF THE WRITER RELATIVE TO THEIR CONTENTS
ACTIVITY-BASED SYSTEMS: MEASURING THE COSTS OF RESOURCE USAGE
Activity-based cost (ABC) systems estimate the cost of the resources used in organizational processes to produce outputsùproducts or services. While attempts are made to interpret activity-based costs within the context of the traditional fixed versus variable cost framework, this approach is inconsistent with an ABC system's measurements of resource usage costs. The fixed versus variable cost classification attempts to classify the likely change in spending or supply of a resource. Measurement of unused capacity through the application of the ABC model provides the critical link between the costs of resources used and the costs of resources supplied or available.
The ABC resource usage cost information can be used by managers to monitor and predict the changes in demands for activities as a function of changes in output volume and mix, process changes and improvements, introduction of new technology, and changes in product and process design. As changes are contemplated, managers can predict where either shortages or excesses of capacity will occur. Managers then can either modify their decisions so that activity demand will be brought into balance with activity supply, or they can change the level of activities to be supplied in future periods.
Activity-based cost systems use separate activity cost drivers for each activity. Activity cost drivers are not devices to allocate costs. Rather, such cost drivers represent the demand that outputs make on each activity.
Because traditional cost systems use allocation bases that do not represent the demands for support resources by activities, the volume variance for a period can be zero even though substantial under or over capacity exists for many individual activities.
ABC systems a...