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Accounting for Management Decisions
Finance & Accounting
Pages 17 (4267 words)
Today many organisations are going out of business as a result of the mounting cut- throat market competition across the globe. Even though a company has a better range of well recognised product lines and brand names, it cannot confront with modern business situation…
In order to be highly competitive in the market, an organisation must be able to forecast future changes in customer needs and market trends. Organisations normally predict possible future market changes by assessing past and current market flows. For this purpose, an organisation deploys a number of business evaluation tools. Activity based costing, value chain analysis, and customer profitability are the three major frameworks that assist an organisation to evaluate its business flow. This paper conducts a detailed research to identify the core concepts, objectives, pros and cons, and applicability of each of these business evaluation methodologies. The paper includes an extensive literature review section and an analysis section.
The major findings reflect that:
• Cost centre and cost driver are two core concepts of activity based costing
• Governance, innovation and upgradation, benchmarking, and product positioning are the key ideas of value chain analysis
• Cash flow, customer capital/equity, and customer as a real option constitute the core concepts of customer profitability
• The ABC approach greatly assists users to better identify their overheads with regard to activities and resources.
• The most advantageous feature value chain analysis is that this methodology assists its users to get a clear view of their core competencies
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