Question

What is the implication of ABM and ABC in the modern pricing?

Answer 1

ABC (Acitvity based costing ) is defined as methodology that measures the cost & performance of activities. Resources are assigned to activities & then activities are assigned to cost objects.In other words it is a way to allocate indirect Overhead cost to specific department.These days organisations require reliable cost system and relevant cost system in order to achieve the correct and accurate price of the product.

The clear picture from ABC led naturally to ABM(Activity based management)

ABM enables the organisation to achieve its organisational goal with fewer organisational resources.ABM specifically focuses on management of activities to improve the value received from customer.ABM further focus on analysis of cost driver , activity and performance measurement on data retrieved from ABC. Further using the data from ABC analysis , ABM focus on how to improve the use of resources to increase the value created by customers.

therefore , in modern pricing system , use of ABC which helps the costing system to allocate the overhead cost to most related product using the cost drivers and activities , is very important as it gives the organisation a clear view and picture of getting a accurate pricing a product .

Further with the help of data retrieved from ABM helps management to focus on the resources which is to be used in producing a product in more efficient and effective manner in order to achieve the organisational goal.