Abm is an integrated approach that focuses

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Unformatted text preview: away fro m it. 4. Informat ion fro m the ABC system can also help Tracy manage its business better in several ways. a. Product design. Product designers at Tracy Corporation likely will find the numbers in the act ivit y­based cost ing approach more believable and credible than those in the simple system. In a machine­paced manufacturing environment, it is unlikely that direct labor­hours would be the major cost driver. Activit y­based costing provides more credible signals to product designers about the ways the costs of a product can be reduced––for example, use fewer parts, require fewer turns on the lathe, and reduce the number of machine­hours in the milling area. b. Cost management. Tracy can reduce the cost of jo bs both by making process improvements that reduce the activit ies that need to be done to complete jobs and by reducing the costs of doing the act ivit ies. c. Cost planning. ABC provides a more refined mo del to forecast costs and to explain why actual costs differ fro m budgeted costs. 5-45 5­3...
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