70 A MANAGEMENT ACCOUNTING FRAMEWORK: A TAXONOMY

In life, the organizations that excel in learning winbut there is no finish line.
(Figure 2.19 is discussed in more detail in Chapter 5.)
8. Emphasis on Predictive Costing and Budgeting
Traditional costing, including activity-based costing, takes a historical view of
time and experience. It is akin to a cost autopsy. The management accountant ba-
sically strives to segment how past resource expenditures either directly trace or
are fairly allocated to final cost objects. But all decisions, by definition, affect the
future. The advanced and mature users of ABC/M data have moved on to apply-
ing their information for predictive planning purposes, budgeting, and evaluating
what-if scenarios.
The majority of initial ABC/M systems were aimed at segmenting historical
period expenses to assess how an organization expended its resources, and where.
This provided insight, but its focus was mainly on what costs had already been in-
curred. Some commercial organizations applied ABC/Ms activity driver rates to
quoting orders for customersan early predictive use of ABC/M cost data. Now,
with expanded ABC/M, organizations believe it is increasingly more important to
test their decisions for the future than simply to understand their past. They are es-
timating and predicting future costs for a broader array of decisions, such as eval-
uating privatization and make-versus-purchase outsourcing decisions.
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Resources
Cost Objects
Resources
Cost Objects
Estimated Numbers Estimated Numbers Estimated Numbers
Traditional
Costing
Simple
ABC/M
Expanded
ABC
Allocated
Accuracy: BAD POOR REASONABLE
Resources
Activities
Activities
Consumed
by
Cost Objects
FIGURE 2.20 Emphasis on Predictive Costing