Activity Based Management aims at :

The correct answer is - Eliminating non-value adding activities

Key Points

• Activity-Based Management (ABM)
  • ABM focuses on enhancing organizational efficiency by identifying and eliminating non-value adding activities.
  • These activities do not contribute to customer satisfaction or the organization's goals but incur additional costs.
  • By eliminating such activities, organizations can focus on processes that provide value to customers and stakeholders.
• Key Objective of ABM
  • The primary goal of ABM is to improve cost efficiency and process performance.
  • It enables businesses to identify wasteful activities, reduce unnecessary costs, and allocate resources more effectively.
• Practical Implementation
  • Organizations use ABM to map out their processes, identify cost drivers, and eliminate inefficiencies.
  • For instance, activities that do not directly contribute to product quality or customer satisfaction can be minimized or restructured.

Additional Information

• Key Concepts Related to ABM
  • Cost Drivers
    • ABM identifies cost drivers, which are factors that cause costs to be incurred for specific activities.
    • Examples include machine hours, labor hours, and material usage.
  • Value-Adding vs. Non-Value Adding Activities
    • Value-adding activities are those that directly enhance the product or service for the customer, such as quality control or product design.
    • Non-value adding activities include redundant approvals, excessive inventory, or unnecessary rework.
• Comparison with Traditional Costing
  • Unlike traditional costing methods, ABM emphasizes activity-level analysis to provide granular cost insights.
  • This allows organizations to make informed decisions about resource allocation and process improvements.