Question

Understanding the true costs of serving a customer is an invaluable information that a manager needs for making successful managerial decision to improve the performance of a business.

Required:

i. Provide a brief account of the major emphasis of the Activity Based Management (ABM) models.

ii. Explore the usefulness of activity-based costing in the implementation customer profitability analysis (CPA) in service industries.

iii. Discuss the possible drawbacks of ABC system despite being considered as a sufficient costing method in service industries.

iv. Using a hypothetical case, demonstrate how costs are allocated to different customer groups under ABC in implementing CPA.