Distinguishing Unit-Level and Higher-Level Resources: Adding a Strategic Dimension to the Traditional Activity Hierarchy
CPA Journal, The › Vol. 74 Nbr. 8, August 2004
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Summary
Activity-based costing (ABC) is a systematic method of assigning the cost of activities to products, services, customers, or any other cost object. Activity-based management (ABM) is using ABC information to control the cost of activities, such as personnel and overhead cost. The fundamental assumption of ABM is that activities cause cost. Thus, ABM focuses management attention on controlling activities, not dollars. The activity hierarchy has proven useful for controlling activities in both service and manufacturing firms. The activity hierarchy has extended conventional cost behavior analysis by recognizing the multidimensional nature of cost drivers in organizations. This hierarchy provides a useful framework to understand and control the cost of activities in almost any organization.
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Distinguishing Unit-Level and Higher-Level Resources: Adding a Strategic Dimension to the Traditional Activity Hierarchy
Activity-based costing (ABC) is a systematic method of assigning the cost of activities to products, services, customers, or any other cost object. Activity-based management (ABM) is using ABC information to control the cost of activities, such as personnel and overhead cost. The fundamental assumption of ABM is that activities cause cost. Thus, ABM focuses management attention on controlling activities, not dollars. While traditional cost systems focus on the worker, ABM focuses attention on the work.
The activity hiera...See the full content of this document
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