Page 6 - MA - May 2017

EDITORIAL

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 editor@icmai.in. 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.

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