The Application Of Activity-based Costing Management In Software Industry

Activity-Based Costing Management (ABCM) is a systematic cost control method based on making use of cost information ABC provides and integrating with all kinds of business processes,such as R&D,product design,procurement & production,QA,sales and services. ABCM effectively avoids the cost distortion caused by unreasonable allocation of indirect cost in traditional costing system. ABCM has been widely used in management practice and has made a great progress in theory since it came up with. In China,however,the ABCM study and practice is still in its infancy.The important way to gain competitive advantages for companies is continue to lower the cost. Currently,in many companies,traditional cost system makes relative cost being transferred into administrative expenses,which covers up the true cost and leads management level to be far away from the real cost. ABCM manages the focus from product in depth to activity level to figure out the existing inefficient activities or non-value-added activities through analysis in activity chain and value chain and accurate cost information ABC provides. This article describes in detail the ABCM-based profitability,internal price transfer,key performance indicator(KPI) and multidimensional support for decision based on introducing background,basic concept,cost accounting. Followed by introduction to improvement and re-engineering of activity-based costing,the paper gives you an idea on how ABCM is applied and how far it can go in software service field. The article is also trying to reveal the big advantage ABCM and to show you how it definitely works via a specific case in SB software company,aiming at drawing attention of management level to ABCM and at helping companies gain competitive advantage through making it being widely used.