CMA Final · Strategic Cost Management · Activity Based Cost Management
Under activity based management, a non-value-added activity such as rework of defective output is best handled by:
Rework is a non-value-added activity, so activity based management seeks to eliminate or reduce it by finding and removing the root causes of defects. Merely reallocating or reclassifying its cost does not remove the waste.
- AEliminating or reducing it through root-cause analysisCorrect
- BReallocating its cost to unit-level drivers
- CTreating it as a facility-level cost
- DIncreasing its cost driver volume
Explanation
ABM aims to eliminate or minimise activities that add cost but no customer value. Reallocating costs or changing classification does not reduce waste, and raising driver volume worsens it.
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