Activity Process Decisions

Activity Based Costing , Balanced Scorecard and Economic Value Added The operating or overheard expenses of an enterprise are generated by its activities to perform its business and /or manufacturing processes successfully . As its name implies , Activity-Based Costing , relates the costs facing the enterprise to its various activities . By so doing this system of costing provides pretty accurate information about costs in addition to the origin of the costs (Cooper , 1988 . According to Liberatore Miller (1998

One of the first areas in which ABC [Activity-Based Costing] gained prominence was

product costing

for manufacturing operations . Traditional manufacturing cost systems

typically allocated costs to products using only a few standard cost bases : labor hours

machine hours and /or material dollars consumed . However , as more firms began to view

manufacturing operations as a series of linked activities , it was increasingly recognized that

these limited traditional bases did not accurately depict the true costs of production . Firms

began to expand the number of cost bases or drivers to include such activities as the number of

setups and changeovers , the number of receipts and shipments , the number of s , and so

on . Thus , many conventional volume-based costing systems gradually evolved toward ABC

Undoubtedly , by keeping an accurate account of its costs in relation to its activities , the firm is in a position to manage the quality of its processes and improve them . Implementing the management system known as balanced scorecard , on the other hand , enables the firm to clarify its vision as well as strategy before translating them into action (Arveson 1998 . Whereas conventional systems of financial reporting may only provide help in understanding the firm 's past performance , the balanced scorecard is able to reveal a vision of the firm 's future as well . In to do so , this system of performance measurement considers financial measures in addition to business process , customer , and learning measures . The financial measures may include the operating income of the firm as well as the economic value added . The customer measures include market share in addition to customer satisfaction and retention . The business process measures could include costs as well as quality while the learning measures generally include employee satisfaction and retention among other measures ( The Balanced Scorecard ' 2007

A firm that relies on an accurate vision of its future with references to measures of its performance has the opportunity to improve its present performance so as to experience a more profitable future Thus , the balanced scorecard management system and activity-based costing may both help the firm to manage and improve the quality of its work process . Yet , both systems are vastly different seeing that cost is only considered one of the measures in the balanced scorecard whereas the activity-based costing system is solely reliant on cost data . While the cost data generated by an activity-based costing system may help the management to develop better strategic objectives , the balanced scorecard is specifically known to help in the clarification of strategy , communication of strategic objectives , planning strategic initiatives as well...