What is the activity base?
In the world of business, the base of activities refers to the concept of ABC costs or the base of activity, which is the way the organization measures the costs of human and capital resources compared to the amount of production achieved. In order for the organization to control the costs of trade in the production of goods and services, a system for measurement of all resources must be introduced. The base of the activity is therefore a point in which the company document the profitability of this careful balance between sources and income.
When an organization is able to realize a profit or increase in income on the basis of an activity base, it is generally considered to be a good position in terms of business. Unrecognizing a critical point in which sources produce better earnings can be harmful to the success of the organization focused on the production of high quality goods and services. If ABC is too low, it means that there is a lack of work and the production of goods or services needed to maintain the organization in the need for resources.
Methodology of the Base of Activities is usually used to take strategic decisions about the addition of employees, equipment and more resources that can be carried out by multiple services or produce multiple goods. By adding multiple products and services or increasing work, the organization can generally expect to achieve a higher level of profitability. The more profitable the organization, the higher the ABC level, which is measurement of organizational growth.
In addition to providing a clearer image of the nature of productivity within the organization, the basic activity can also be an indicator of product levels and services levels. If the basic level is high, this means that prices can be adjusted down, which increases the rate that products can be sold on the market, which will increase the income over time over time. On the other hand, if the activity level is low, prices can be increased so that the profit range can improve.
By measuring the base against profits, the organization can better estimate business costs, JAKOs are direct labor costs and eliminate products or services that do not earn a reasonable amount of income. ABC measurement can be easily monitored for a more accurate picture of what each department or division of the organization does, so the sources are correctly assigned in all areas to achieve the best results. This helps the organization in the development of new programs that may include the purchase of new capital or human resources.