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U. S. Army Forces Command and XVIII Airborne Corps recognize that installations are "under siege" with continuing reductions in budget dollars and civilian and military manpower. Pressures to outsource base support functions are accelerating with a comprehensive program of commercial study reviews. Senior leaders believe activity-based costing (ABC) is a tool which managers could use to respond proactively to those demands.
In April 1996, XVIII Airborne Corps initiated activity-based costing projects at Forts Bragg, Campbell, Drum, Polk, and Stewart. The objective was to develop and deploy ABC models at each garrison directorate using a common methodology and common software to allow sharing information and identifying best practices.
U. S. Army Audit Agency saw these projects as promising and innovative initiatives to improve cost management and performance in the Army. XVIII Corps offered to establish a partnership with the Agency to assist in developing and deploying the activity-based costing models. Both the Corps and the Agency benefited from the partnership. The Agency gained a working knowledge in ABC, and the Corps used Agency auditor expertise as a resource in developing and deploying the activity-based costing models.
Overview of Activity-Based Costing and Activity-Based Management
Installation managers generally don't have the cost and performance information they need to make informed decisions. Activity-based costing and activity-based management (ABM) are tools which provide fact-based information to support decision-making. ABC and ABM allow managers to make decisions based on cost and performance data rather than by intuition or "gut feel."
ABC is a costing technique which focuses on the activities (work) performed within an organization. It is a two-stage process. First, the cost of a resource (civilian and military labor, supplies, travel, etc.) is assigned to the activity (issue supplies or certify a bill) which consumes that resource. Second, the costs captured for activities are assigned to the product or service which that activity produced.
ABC differs from traditional costing techniques in that the assignment of costs is based on a causal relationship. The cost of resources is assigned only to the activities that consume those resources and activity costs are assigned to only those products or services which created the demand for that activity to be performed. In traditional costing, direct costs are assigned to the associated product or...