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Hi Tutor, hope you are doing well..
I have gone again and again over these two topics and I am utterly confused.
I am having difficulty in differentiating between the two. Does ABB comes after ABM or management comes first and then budgeting. Management is concerned with the acticities that incur cost to see if they add value and non-value adding activities should be eleminated. Doing things differently to achieve the same objective to reduce cost but not at the expense of quality etc..
and after you’ve managed the activities you devise a plan and budget. Is that how it works, please?Thank you.
I tend to look at it as:
1 Activity based costing. This is essential as it clarifies cost drivers and is essential for understanding costs.
2 Based on that understanding either of ABB or ABM can occur next. For example, it might be clear that one of the fixed costs could be greatly reduced by changing operations. Eg batch set-up costs per unit can be decreased by making larger batches. Alternatively, an ABB can be drafted and then it is a matter of ABM to try to ensure that the budget is met.
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