How can the information generated from an Activity-based management or activity based costing system be used...

How can the information generated from an Activity-based management or activity based costing system be used by management?

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When activity-based costing is used in conjunction with activity-based management, organizations usually makes dramatic improvements in their operations. Activity-based costing is helpful in providing the management relatively accurate cost information about the product. Activity-based management or activity based costing system provides three steps for management to use that can lead to improved profitability and efficiency of operations. These steps are:

Step-1) Identify activities required to complete products: The step involves interviewing personnel throughout the organisation. Activity-based management allows for a more detailed analysis as the estimation of costs and related overhead rates are not required when using it.

Step-2) Determine whether activities are value-added or non-value-added: The activities that add to the quality and performance of the product are termed value-added activities. Conversely the activities that do not add to the quality and performance of the product are termed non-value-added activities.

Step-3) Continuous improvement of the value-added activities and elimination or minimizing the non-value-added activities: The value-added activities require the continuous improvement of the activity and the non-value-added activities should be minimized or eliminated

ekkarill92 answered 10 months ago

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