In a manufacturing environment where a large number of similar items are produced, it makes sense to study the different activities that are brought together in the manufacturing process. By knowing how material, labour and overhead costs are put to use, managers get a better idea of what price to offer that product or products.
The success of ABC costing is the ability to identify strategies that help the company improve its product design by eliminating activities that are non-productive or non-economical. The second goal to keep in mind is how to exceed customer´s expectations profitably.
These basic steps are involved:
By fully understanding the processes involved, managers are able to create a message that process knowledge is important and continuous improvement is expected.