Activity-Based Costing, Management & Profitability Analysis – Chapter 1 Review

What is the primary purpose of the CGMA Cost Transformation Model?

To foster cost leadership and operational excellence by driving six strategic cost-focused changes, such as creating a cost-conscious culture and leveraging technology.

Name two ways an organization can ‘engender a cost-conscious culture’ under the CGMA model.

(1) Train employees to reduce wasteful spending (e.g., turn off unused lights). (2) Use technology such as automated lighting to enforce savings.

In the CGMA example, by how much did monthly electricity costs fall after the energy-saving initiative?

By 15 %.

Why did a manufacturing firm in the CGMA example switch back to a slightly more expensive supplier?

Because cheaper materials increased customer complaints; higher-quality inputs balanced cost and customer satisfaction.

Define Activity-Based Costing (ABC).

A costing system that allocates overhead to products or services based on the