Cost objects use cost drivers to allocate activity

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Strategic Management: Concepts and Cases: Competitiveness and Globalization
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Chapter 12 / Exercise 2
Strategic Management: Concepts and Cases: Competitiveness and Globalization
Hitt/Ireland
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are assigned to activities and activities to cost objects. Cost objects use cost drivers to allocate activity costs to outputs. Absorption costing focuses on volume-related drivers (for example, machine hours or labor hours) whereas ABC focuses on transaction-based drivers (such as orders received, processes required). Thus, long-term variable overheads that are considered to be fixed costs can be traced back to individual offerings, forming the basis for value-based decisions.b.The main advantage of ABC is that it provides a more meaningful picture of product or service costs, and thereby can lead to better pricing decisions. By focusing on cost drivers, ABC isolates activities that do not create value and paves the way for managers to either eliminate them or at the least to reduce such costs. ABC can also be used for profitability analysis for offerings and customers. Thus, it can be a valuable complement to the Balanced Score Card, Continuous Improvement, and related Performance Management techniques.L.Supply Chain Managementa.Supply Chain Management (SCM)is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supplychain management involves coordinatingthese flows both within and amongorganizations. The objective of aneffective SCM system is to minimizeinventories at every stage. In otherwords, the concepts of Just in Time (JIT)and supply chains go together.b.SCM flows are comprised of:i.Product or Service flow.ii.Data and Information flow, andiii.Finance flowc.Vertically integrated partnerships orvalue-adding partnerships are a set ofindependent organizations working closely together to manage the flow of goods and services along the entire value-chain. In the most successful models,value-adding partnerships are comprised ofsmall companies, each of which performs onepart of the value-added chain andcoordinates its activities with the rest ofthe chain.M.SCM Examplea.An excellent example of a value-addingpartnership is that of McKessonCorporation, an American companydistributing pharmaceuticals at aretail sales level and providing healthinformation technology, medicalsupplies, and care management tools.The company had revenues of $179 billion in 2015. Over the last thirtyyears, the company has built enduring relationships across the value chain. The McKesson partnership is so powerful that competitors have
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Strategic Management: Concepts and Cases: Competitiveness and Globalization
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Chapter 12 / Exercise 2
Strategic Management: Concepts and Cases: Competitiveness and Globalization
Hitt/Ireland
Expert Verified

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