ABSTRACT
The emergence of Activity Based Management (ABM) provided a means of enhancing profitability. ABM focuses on the company's processes. ABM is the management of improvement through the analysis of business processes, and their associated activities. Having derived accurate product costs, ABM goes further and analyses the costs of servicing each customer or specific segments of the customer base. In conventional accounting, and particularly in manufacturing companies, costs are categorized into two main types: direct costs and overheads. Using activity-based target costs throughout the product design and development process brings the real world of the competitive marketplace right into the start of the process that creates costs. Gone are the days when companies could design a product, work out its costs, add a bit for overheads, and then announce the price. Activity Based Costing was presented as a means of establishing product costs more accurately.
