There is different ways to measure and assign cost, two possible measurement system are actual and normal

costing. Actual costing assign the actual cost of direct material, direct labor and overhead to products, meanwhile normal costing assigns the actual cost of direct materials and direct labor to products. There is two method to calcutale the cost, which is Functional Based Costing and Activity Based Costing (ABC). Functional Based Costing assign directs materials and direct tracing. It means in a functional based system, the consumption of overhead by products is assumed to be explained only by unit based activity drivers. Meanwhile in ABC system, they improve product costing accuracy by recognizing that many of the fixed overhead cost vary in proportion to changes other than production volume. Product Diversity means that products consume overhead activities in systematically different proportions. Activity-based management or we call it ABM is a system-wide, integrated approach that focuses managements attention on activities with the objective of improving customer value and the profit achieved by providing this value. ABM has two dimensions, which are cost dimension and process dimension. The cost dimension provides cost information about resources, customers, suppliers, and distribution channels. While process dimension provides information about what activities are performed, why they are performed, and how well they are performed While ABM has ten steps to be implemented, four of those steps are associated with ABC, four of those steps are associated with PVA, and two others are common steps. Those two steps are common to ABC and PVA. Those are systems planning and activity identification, definition, and classification. System planning provides the justification for implementing ABM. In the other sides, identify the activities help management to focus their attention on the activities. While knowing the tasks that define an activity are being very helpful for improving the efficiency of value-added activities. And classification of activities allows ABM to connect with other continuous improvement initiatives such as JIT (Just In Time) manufacturing, total quality management, and total environmental quality cost management.

Assigning responsibility list the differences in responsibillity assignment between the two system, which are financial based responsibility and activity based responsibility. In the table below is the differentiation of financial based responsibility and activity based responsibility.

Financial Based Responsibility Organizational units Local operating efficiency Individual accountability Financial outcomes

Activity Based Responsibility Procesess Systemwide effiency Team accountability Financial outcomes

Process Value Analysis (PVA) is fundamental to activity-based responsibility accounting that focuses on accountability for activities rather than costs and it emphasizes the maximization of system wide performance instead of individual performance. Process value analysis is concerned with:

Driver Analysis Driver Analysis is the effort expended to identify those factors that are the root causes

of activity costs.

Activity Analysis Activity analysis is the process of identifying, describing, and evaluating the activities an organization performs. Activity analysis should produce four outcomes, which are (1) what activities are done, (2) how many people perform the activities, (3) the time and resources required to perform the activities, and (4) an assessment of the value of the activities to the organization, including a recommendation to select and keep only those that add value. Step 1-3 are critical for assigning costs, while step 4, determining the value-added content of activities are concerned with cost reduction rather than cost assignment. The activities in activity analysis can be classified as value added activity or non value added activity. The value added activity is all activities necessary to remain in business and comply with legal mandates,. Once value-added activities are identified, we can define value added cost. Value added costs are the costs to perform value added activities with perfect efficiency. The non

value added activity is all activities other than those that are absolutely essential to remain in business, and therefore considered unnecessary. It can be identified by its failure to satisfy any one of the three previous defining conditions. To maximizing the value added activity, we also improvement carries with it the objective of cost reduction. Efforts to reduce cost of existing product and processes is referred to as kaizen costing, and in kaizen costing activity analysis is a key element.