This chapter (chapter 6) discuss the activity-based management and cost management tools. The focus company used in this chapter is the same from chapter 5, Patio Grill Company. On the previous chapter we discuss that the company was moving to the activity based costing system (ABC), and now we are going to discuss the activity based management which used data from the ABC system. The relationship between costs and activities are called behavioral costs, this is relevant for management functions to plan, control and make decisions. In order to prepare a plan of operations and prepare a budget, managers need to predict the costs at which different levels of production and sales will be incurred. To control the costs of loan services, the company that does the process needs to know so that the function will use that money. In decision making, management needs to predict operating costs, keeping …show more content…
As the activity level gets further away from the limits of the reference range. Management accountants often use a behavioral pattern of semi-variable costs to approximate a curvilinear cost. It is important to know the limit of the approximation range of an activity in which the accuracy is acceptable. In the process of budgeting costs, it is often useful for management to make a distinction between engineering, committed to discretionary costs. Engineering costs keep a definite physical relationship to the measure of the activity. The costs incurred result from an organization of owners or the use of facilities and their structure of grassroots organizations. Discretionary costs arise as a result of a management decision to spend a certain amount of money for some purpose. Managers can change committed costs only through a relatively important decision that has long-term consequences (Hilton,