Effective Implementation of Activity Based Cost Management (ABCM) Practices by Manufacturing Companies in South India

In the current vigorous global competition, continuous improvement of performance is necessary to match or stay ahead of leading competitors. Continuous improvement in ongoing processes by which producers have to take steps to search for new methods to reduce cost and eliminate waste, improve quality and reduce defects in the production process. Today, cost management is part of a strategy for long-term growth in both market share and profitability. The targets for cost-reduction are market-driven. And reductions are sustained on an ongoing basis, so that the company improves its competitive position regularly. Further, cost is no longer what the producers incur as a matter of course, but it is what the market is willing to pay and it is what the competitions allows. Therefore, at this juncture, companies need a product costing system which will be able to analyze precisely how costs arise and its reduction and also eliminate redundant cost. Activity Based cost management (ABCM) offers the way for it. ABCM is a product cost management system that assigns support costs (over head) to products in the proportion of the demand each product places on various activities. Further, ABCM first accumulates overhead costs for each of the activities of an organization and then assigns the costs of activities to the products that caused that activity. To establish a cause and effect relationship between an activity and a cost object, cost drivers are identified for each activity