Obviously no organization can stay in business if it sells its products and services below its cost.

Organizations do create loss leaders in order to attract new customers or to attract customers to your location. However, they should understand the loss they are incurring on each product or service sold.

Activity Based Pricing using Activity Based Costing has been shown to be a more accurate way to determine

• Determining product profitability
• Determine service profitability
• Determining customer profitability
• Determining channel profitability
• Determine sku profitability
• Shared services pricing
• Transfer pricing
• Outsourcing pricing

The reason Activity Based Pricing using Activity Based Costing has been shown to be a superior pricing tools is that it does a better job of assigning costs to cost objects:

• products
• services
• channels
• customers
• sku
• transfer or shared service costs

The reason Activity Based Costing is considered superior is that rather than make arbitrary allocations of costs, activity based costing does a better job of assignment costs to cost objects. Lets take some simple examples.

Expense             Traditional                         Activity Based Costing

Phone                  head count                       head count of those who have phone

Hiring                   department                        number of hires by department

POs                      department                         Number of purchase orders 

Set Up                 products manufactured   Number of set ups per product

By more accurately assigning costs, organization has a truer picture of their actual costs for various cost objects above.

Call or email below John Antos at 972-980-7407 to find out how Activity Based Costing can help you reach your goals and give your peace of mind