It refers to a cost accounting system that aims to identify money losers or winners by linking cost drivers directly to products or services that require activities consuming resources. ABC begins with the dissection of supply chain activities in terms of their causal relationship with cost objects and then specifies where non-value-adding activities exist.<\/p>\n\n\n\n
In other words, ABC helps the firm uncover the root causes of cost increases that do not contribute to profit increases. Therefore, the ultimate purpose of ABC is to increase profit margin by eliminating non-value-adding activities that cost money. Examples of non-value-adding activities include the use of nonstandard materials, components, and parts; red tape (too much paperwork); lengthy purchase approval processes; redundancy; defects, rework, and scrap; split shipments, emergency\/rush shipments, and damaged shipments; and an excessive number of suppliers.<\/p>\n\n\n\n
ABC makes the following fundamental premises<\/p>\n\n\n\n
These premises indicate that a company\u2019s outputs give rise to the need for various supply chain activities that incur costs. To make ABC more meaningful, these costs should be accurately defined and measured, while the cause-and-effect relationship between the company\u2019s supply chain activities and resultant costs should be examined carefully.<\/p>\n\n\n\n
Under these premises, ABC can be implemented by taking the following steps<\/p>\n\n\n\n
The advantages of ABC are<\/p>\n\n\n\n
The disadvantages of ABC, are<\/p>\n\n\n\n
It refers to a cost accounting system that aims to identify money losers or winners by linking cost drivers directly to products or services that require activities consuming resources. ABC begins with the dissection of supply chain activities in terms of their causal relationship with cost objects and then specifies where non-value-adding activities exist. In…<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-102936","page","type-page","status-publish","hentry"],"acf":[],"yoast_head":"\n