activities associated with the product will presumably disappear, but will the costs?
If it is unclear who would be responsible for reducing the costs, no one may
actually take any action. This is particularly true for personnel costs. What manager
will voluntarily give up personnel if there is no accountability?
Be sure to reinforce the idea that the costs assigned to a product, customer, or
whatever in an activity-based costing system are relevant in a decision only if the
costs would actually change if the decision were taken. For example, in a product
drop decision, the costs of resources are relevant only if spending
a result of the decision or the resources
be redeployed to more profitable
uses. In the latter case, this means that the resources would have to be redeployed to
An action analysis report makes it much clearer what costs are likely to be
relevant in a decision and who in the organization would be responsible for the cost
if an action is taken. Unfortunately, preparing an action analysis report requires
considerably more work than the more conventional analysis.
(Exhibit 8A-2) The action analysis approach differs from the
conventional ABC approach beginning with the computation of the activity rates. In
the conventional analysis, a single activity rate is computed for each activity cost
pool. In an action analysis, a rate is computed for each cost category within an