ACTIVITY-BASED COSTING AND ITS RELATIONSHIP TO

Activity-Based Costing is a set of systems that a manager can use to trace historical costs (resources consumed) to activities and then, through those activities, to products or services provided (Tavana & Rappaport, 1997, 307). ABC allows local managers to develop activities for their cost needs while simultaneously generating service or process costs. The advantage of the detail in ABC for the manager is to give visibility to value added and non-value activities (Masters, Allenby, La Londe, & Maltz, 1992, 47).

Within this framework, are further sub-definitions. "Activities," for example, are what people do to accomplish work, whether the end result is a good or a service. Activities are named with a verb and direct object, e.g. "pack boxes," "unload inventory," "assemble golf clubs" and so on.

Activity Based Costing analyzes these "activities" to determine ratios between activity unit costs and activity volumes. There is another term to be considered. "Service Based Costs," or SBC. A Service Based Cost is the cost of all the activities performed to provide that service. Services consume activities, and activities consume resources.

ABC can best be understood by thinking of its relation to systems Activity-Based Costing. As defined by the Council of Activity-Based Costing Management, "Activity-based Activity-Based Costing is

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ctronic Data Interchange) is a sub-system provides the means of achieving necessary co-ordination to support broad-ranging Activity-Based Costing operations from order handling to shipment delivery and generally allows firms to be more responsive to customer requests by making every step (of the order cycle) faster and every step more accurate (Calza & Passaro, 1997, 162). Resistances The Activity-Based Costing systems and managers of 2000 will have to do more with less. These requirements will require a more flexible, more responsive Activity-Based Costing structure and will require Activity-Based Costing managers with the vision and knowledge to exploit available technology as it develops. However, with the current successful usage of the technologies of EDI, IOS and Intranet hardware and software, the Activity-Based Costing manager of today is well placed to handle the Activity-Based Costing problems of tomorrow. Especially since increasingly, technologies such as EDI are being used strategically to create sustainable competitive advantage (Calza & Passaro, 1997, 162). "One of the biggest mistakes a business can make is to accept the known and resist the unknown. You should, in fact, do exactly the opposite. Cha
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Approximate Word count = 2217
Approximate Pages = 9 (250 words per page)

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