Keep Business-Sustaining Costs Out of False Product Decisions
Distinguish activity-driven costs from business-sustaining costs in an ABC model.
Do not let arbitrary overhead masquerade as product economics. Teach ABC improves decision quality by tracing costs through activities, but not every cost has a meaningful activity driver at the product or customer level. Some costs are business-sustaining: executive leadership, statutory reporting, core brand protection, headquarters governance, and other capabilities required to keep the enterprise operating. If these are pushed into product profitability with arbitrary drivers, the model creates false precision. The decision rule is practical: assign a cost only when the cost object meaningfully consumes the activity and management can change the activity through a decision about that object.…
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