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The projects need to be monitored very carefully over their life to make sure that they remain on schedule and that cost overruns are not being incurred. 4 Customer life cycles Customers also have life cycles, and an organisation will wish to maximise the return from a customer over their life cycle. The aim is to extend the life cycle of a particular customer or decrease the 'churn' rate, as the Americans say. This means encouraging customer loyalty. For example, some supermarkets and other retail outlets issue loyalty cards that offer discounts to loyal customers who return to the shop and spend a certain amount with the organisation.
An increasing proportion of overhead costs are therefore incurred at batch or product level. Such an analysis of costs gives management an indication of the decision level at which costs can be influenced. For example, a decision to reduce production costs will not simply depend on making a general reduction in output volumes: production may need to be organised to reduce batch volumes; a process may need to be modified or eliminated; product lines may need to be merged or cut out; facility capacity may need to be altered.
In modern manufacturing systems, overhead functions include a lot of non-factory-floor activities such as product design, quality control, production planning and customer services. ABC is concerned with all overhead costs and so it takes management accounting beyond its 'traditional' factory floor boundaries. 1 Criticisms of ABC It has been suggested by critics that activity based costing has some serious flaws. (a) (b) (c) (d) (e) (f) Exam focus point Some measure of (arbitrary) cost apportionment may still be required at the cost pooling stage for items like rent, rates and building depreciation.