ACTIVITY-BASED MANAGEMENT AND

COST MANAGEMENT TOOLS

Activity-Based Management

The use of
ABC costing
information
to help
management
make decisions
Activity-Based Management

Activity-based costing establishes relationships

between overhead costs and activities so that
we can better allocate overhead costs.
Activity-based management focuses
on managing activities to reduce costs.
Two-Dimensional ABC and Activity-
Based Management
Cost Assignment View

Resource costs

Activities

Cost Objects
Two-Dimensional ABC and Activity-
Based Management
Cost Assignment View

Resource costs
Process View
Activity Analysis Activity Evaluation

Root Activity Performance

Causes Triggers Activities Measures

Cost Objects
Elimination of Non-Value-Added Costs

Activities

Nonvalue-
added
activities
Unnecessary Necessary

Reduce or Continually Evaluate

Eliminate and Improve
Using ABM to Eliminate Non-Value-
Added Activities and Costs
Identify Activities.
Using ABM to Eliminate Non-Value-
Added Activities and Costs
Identify Activities.
Identify Nonvalue-Added Activities.
Using ABM to Eliminate Non-Value-
Added Activities and Costs
Identify Activities.
Identify Non-Value-Added Activities.
Understand Activity Linkages, Root Causes, and
Triggers.
Inspect Rework
Specify Select Receive Produce
finished defective
parts vendor parts goods
goods products
Using ABM to Eliminate Non-Value-
Added Activities and Costs
Identify Activities.
Identify Non-Value-Added Activities.
Understand Activity Linkages, Root Causes, and
Triggers.
Inspect Rework
Specify Select Receive Produce
finished defective
parts vendor parts goods
goods products

Establish Performance Measures.

Using ABM to Eliminate Non-Value-
Added Activities and Costs
Identify Activities.
Identify Non-Value-Added Activities.
Understand Activity Linkages, Root Causes, and
Triggers.
Inspect Rework
Specify Select Receive Produce
finished defective
parts vendor parts goods
goods products

Establish Performance Measures.

Report Non-Value-Added Costs.
Using ABM to Eliminate Non-Value-
Added Activities and Costs
Process time

Inspection time Storage time

Move time Waiting time

Achieving Cost Reduction

Activity Activity
Reduction Selection

Reduce
Non-Value-Added
Costs
Activity Activity
Sharing Elimination