Activity based management seeks to portray a company as a series of activities which are related to customer desires and cost.
Activity based cost is a process for measuring the cost of the activities of an organization.
Activities within an organization are identified and an average cost is associated with each activity. The total cost of a product is the sum of the costs of activities required to bring forth, sustain, and retire the product. The cost of an activity for a product is defined as the average cost of the activity times the number of times the activity is required for that product. Activities include establishing vendor relations, purchasing, receiving, disbursing, setting up a machine, running the machine, reorganizing the production flow, redesigning the product, and taking a customer order. The performance of these activities triggers the consumption of resources that are recorded as costs in accounts.