Acc103 Abc Abm

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(d) Distinguish between ABC and ABM. Why might a company adopt ABC, then stop using it, but consider that its adoption had been a success? In developing an activity list, why might employees not want to reveal realistic information about the time spent on their activities? Activity-Based Costing (ABC) and Activity-Based Management (ABM) have brought about radical change in cost management systems and helped to improve the performance of an organization. As for ABC, it determines the cost of activities without distortion and timely information is provided to management. It consists of two-stage procedure in order to assign overhead costs to products and services. In the first stage, ABC identifies production activities and assigned costs based on the number of transaction involved. An activity cost pools is a grouping of all overhead costs associated with it. The second stage of ABC is identifying cost drivers to each activity cost pool (Hilton 2008, p. 173). Each activity cost pool consist of own pool rate which is defined as cost per unit of the cost driver. As for ABM, the purpose is to support organizational strategy, improve operations and manage costs by using provided information. The ABC analysis helps to revise the product pricing to reflect the product cost more precisely (Hilton 2008, p. 186). After initially adopting ABC, a company would have already identified the current activity cost driver rates, estimates of process, product and customer costs. There is a problem though with the maintenance of using ABC when we look at for example, a company that have 70,000 employees at more than 100 facilities to submit monthly interview of their time used. The company would need to provide 14 full time employees just to collect the ABC data collection, processing and reporting which could take up to several months to compute. It is obvious that it requires
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