Most managers implementing ABC systems for the first time start by analyzing actual costs to identify activity-cost pools, cost-allocation bases, and activity-cost rates. Managers then calculate budgeted rates (as in the Plastim example) that they use for planning, making decisions, and managing activities. At year-end, managers compare budgeted costs and actual costs to evaluate how well activities were managed. Management accountants make adjustments for underallocated or overallocated indirect costs for each activity using methods described in Chapter 4. As activities and processes change, managers calculate new activity-cost rates.
We return to activity-based management in later chapters. Management decisions that use activity-based costing information are described in Chapter 6, where we discuss activity-based budgeting; in Chapter 12, where we discuss outsourcing and adding or dropping business segments; in Chapter 13, where we present reengineering and downsizing; in Chapter 14, where we evaluate alternative design choices to improve efficiency and reduce nonvalue-added costs; in Chapter 15, where we explore managing customer profitability; in Chapter 20, where we explain quality improvements; and in Chapter 21, where we describe how to evaluate suppliers.