Public Sector Governance and Accountability Series: Budgeting and ...

Activity-Based Cost Management in the Public Sector 217
but rather should follow ABC/M principles. The multistage cost-assignment
approach includes an understanding of the relationships between indirect
work activities and other activities, as well as between those activities and
cost objects. Costs are traced from activity to activity in a series of stages, all
based on cause-and-effect relationships.
Figure 7.4 disaggregates and expands the two-stage view of figure 7.3
and rotates it to a vertical view, to reveal a generic ABC/M structure that
is a good representation of a universal costing model for any organization.
To understand figure 7.4, imagine the cost-assignment paths (the arrows)
as pipes and straws; the diameter of each path reflects the amount of cost
flowing. The power of an ABC/M model lies in the fact that the costassignment
paths and their destinations make it possible to trace segment
costs from beginning to end, from resource expenditures to each type of
(or each specific) customer—ultimately the origin for all costs and
expenses. The cost-assignment network captures and reflects the diversity
and variation in how cost objects uniquely consume the activities and
Resources
(fund accounting
ledger)
Salary,
fringe
benefits
Direct
material
Phone,
travel
supplies
Depreciation
Rent,
interest,
tax
Work
activities
Support
activities
People
activities
Equipment
activities
“Cost-to-serve”
paths
Final
cost
objects
Costs measure the effects
(1) Demands on work
Costs (2)
Suppliers
Products
and
services
Organization
sustaining
Citizens and customers
Source: Author’s representation.
FIGURE 7.4 The Expanded ABC/M Cost-Assignment Network