Page 6 - MA - May 2017
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                               Greetings!!!                         processes and then to products, services
                                                                    and  customers.  In  this  way  managers  have
                               Cost is the key to enterprise product pricing   obtained a clearer picture of the economics
                             and the foundation to achieve product pricing   of their operations and could improve their
                             strategy. At present, while enterprises choose   decisions. ABC and ABM have brought about
                             the most basic pricing method which is   radical changes in cost management systems.
                             called cost-plus method to pricing  product,   The principles and philosophies of  activity
                             the effect of  cost is more marked. The key   based thinking apply equally to service
                             to reasonable pricing is to determine a cost   companies, government agencies, process
                             accounting method, which provides accurate   and manufacturing industries. Management
                             cost information for enterprise and can be   practices and methods have changed over
                             the scientific basis in pricing.  ABC activities   the last decade and will continue to change.
                             have been around for more than two decades   Organizations have moved from managing
                             and many companies in a variety of sectors   vertically to manage horizontally. There has
                             have  implemented  activity  based  thinking.   also been a move from a function orientation
                             Activity based costing  is a method for assigning   to a process orientation. ABC technique
                             costs to products, services projects, tasks,   mirrors the functioning of an organization
                             or acquisitions based on activities that go   and contributes to strategic decision-making
                             into them and resources consumed by these   processes. It identifies the relation of  the
                             activities.                            product within the business activity and the
                               Companies implement activity based costing   resources it requires.
                             in order to:                             In a business organization, the ABC
                              Identify individual products that are not   methodology assigns an organization’s
                                profitable.                         resource costs through activities to the
                              To find the true costs of products so as to   products and services provided to its customers.
                                support pricing policy.             It is generally used as a tool for understanding
                              Reveal unnecessary costs to eliminate.  product and customer’s cost and profitability.
                                                                      Familiarity with and adoption of ABC has
                               Product cost plays an important foundation   been found to be comparable across both the
                             role in pricing. With the high development of   manufacturing and service sectors. Both
                             new technology, traditional cost accounting   service and manufacturing firms are benefitted
                             methods cannot meet the industry's need for   with the applications of ABC mechanism.  ABC
                             accurate cost information. Activity Based   also focuses management to ensure that cost
                             Costing, which focuses on activity and its cost   effective methods are used to produce current
                             driver, can determine the cost of the product   products to current customers at a price that
                             to arrive at a reasonable price much more   generates the maximum positive ABM Product
                             accurately. Cost and Management Accountants   and Customer Contributions and also to ensure
                             know that traditional cost accounting can   that the ABM Contributions are used effectively
                             hide or obscure information on the costs of   to generate new products and services to new
                             individual products and services, especially   markets such that the return on the investment
                             where local cost allocation rules misrepresent   in sustaining costs is greater than that which
                             actual resource usage. As a result, the move to   would be achieved by shareholders investing
                             ABC is usually driven by a need to understand   elsewhere.
                             the  "true  costs"  of  individual  products  and   This issue presents a good number of articles
                             services more accurately.              on the cover story theme ‘Activity Based Costing
                               Activity-based cost (ABC) and activity-based   & its Applications’ by distinguished experts
                             management (ABM) systems have emerged to   and authors. We look forward to constructive
                             meet the need for accurate information about   feedback from our readers on the articles and
                             the cost of resource demands by individual   overall development of the journal. Please send
                             products, services and customers and these   your mails at We thank all the
                             systems also enable indirect and support   contributors to this important issue and hope
                             expenses to be driven first to activities and   our readers enjoy the articles.

          6    The Management Accountant      May 2017                                   www.
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