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Activity Based Costing/Activity Based Management
Increasing competitive pressures within the Indian markets have influenced the manner in which organizations conduct their business. The thrust now is on the overall service offering with the physical product being just a part of the overall offer. Customer expectations have been forcing organizations to expand the service portfolio in an attempt to address the ever-expanding need portfolio.
The widening product portfolio, increasingly complex customer profile and use of common facilities across product / service offerings has increased the need for a more accurate understanding of costs. Activity Based Costing (ABC) supports organizations in achieving such an understanding of costs by providing the framework for cost capture and cost tracking. Activity Based Management (ABM) is the logical extension of Activity Based Costing where the understanding derived out of an ABC implementation is used on a consistent basis to attain cost control / reduction.
KPMG Worldwide was instrumental in the evolution of Activity Based Costing.
In India KPMG was the first to introduce the concepts of Activity Based Costing to the corporate sector, and the first ABC engagement for an Indian corporate was also executed by KPMG. This has been achieved through our proprietary ABC model, which has been evolved and customized specifically for Indian organisations.
KPMG and Indian Corporates have jointly worked towards ABC / ABM implementations for a variety of reasons. Some of these include:
- To link activity based information and process re-engineering exercise to have a better understanding of assignment of costs by service
- Differentiate costs between plants and between products within each plant
- To develop a model to facilitate costing of products and provide a better understanding on the origin of costs
- To understand how operations use resources, and how operations can be focused to provide the best return on investment of time and reduce costs
- To analyze the total cost of production and costs of supporting new products
- To analyze customer profitability
- To aide product/business portfolio restructuring
Activity Based Costing has been used by several companies across diverse industry segments such as Automotive, Construction, Financial institutions, Technology, Health Care, Mining, Oil & Gas, Publishing, Transportation and Utility.
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