Question

Describe how activity-based cost management can be used to improve operations. Please use a specific type of company and give specific examples.

Answer 1

Question: Describe how activity-based cost management can be used to improve operations.

Activity based cost management can be helpful in the following cases;

• Segregation of activities based on their profitability or expected loss from a particular activity.
• Mangers can take proper corrective actions for improving efficiency of the production.
• Helpful for managers in preparing effective budgets based on the data collected at various points.
• Helpful in controlling the costs incurred in various operational activities.
• A company can turn its loss making divisions to profit making by controlling relevant cost drivers.

Question: Please use a specific type of company and give specific examples.

ABC Company has the following businesses across various divisions like spinning division, processing division, garment division, coating division and bag division. Adoption of activity based costing will help the management in understanding the cost drivers that are involved in the various divisions of the ABC Company. Hence it will improve help in continuous improvement in the operations by controlling cost drivers in the spinning division, processing division, garment division, coating division and bag division.