How can companies meet this challenge? Functional cost cutting is no longer an option without rapid deterioration in product and service quality. Price increases are rarely possible due to high competition and availability of substitutes. Some viable options are: (1) Abandon unprofitable products, services and customers; (2) Streamline internal business processes to identify and remove waste; and (3) Collaborate with business partners to reduce costs along the value-chain. All of these options require a company to properly and accurately measure costs of products and services to determine true profit margins.
Product costs may be measured either based on a traditional cost measurement system or an activity-based cost measurement system. Traditional cost accounting systems exclusively focus on allocation of costs to different products (in some manner, often arbitrary), while Activity-based costing (ABC) involves delving into the cause-effect... [continues]
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