Question

1. Compare and contrast activity-based costing (ABC) and activity-based management (ABM).

2. A hospital can use activity-based costing (ABC) for costing its services. In a hospital, what activities might be considered to be value-added activities?

Answer 1

Activity-based costing (ABC) focuses on accurately allocating indirect costs to products or services, while activity-based management (ABM) uses ABC information to make strategic decisions and improve processes. In a hospital, value-added activities might include patient care, surgical procedures, diagnostic tests, medication administration, and patient education.

Step-by-step explanation:

Activity-based costing (ABC) and activity-based management (ABM) are both financial management tools used by businesses to improve cost allocation and decision-making.

Activity-based costing (ABC) focuses on accurately allocating indirect costs to products or services by identifying and measuring the activities that consume resources. It assigns costs based on the activities that drive the costs, rather than using broader allocation methods like direct labor or machine hours. ABC helps businesses understand the true cost of producing a product or delivering a service.

Activity-based management (ABM), on the other hand, uses the information obtained from ABC to make strategic decisions and improve business processes. ABM involves analyzing activities and their costs to identify opportunities for cost reduction, process improvement, and value creation.

In a hospital setting, some value-added activities that might be considered include patient care, surgical procedures, diagnostic tests, medication administration, and patient education. These activities directly contribute to the delivery of healthcare services and are essential for patient well-being.