Activity Based Accounting for Distributors


This article examines Activity Based Accounting (ABA) for industrial gas distributors. In its broadest terms, ABA involves identifying profitability drivers, including those for revenues and costs, and assigning them to specific physical and business activities.

Many businesses — both large and small — do not have solid information regarding the real profitability of their business or their best product mix.

This is often the case because company managers don’t have a full understanding of the activities and resources that go into selling, producing, and delivering their products. The current recession has us all examining our balance sheets and profits and losses (P&L) more closely. Many businesses are struggling to maintain current Earnings Before Interest & Tax (EBIT) and looking for ways to minimize losses if the economy gets even weaker. Business strategies have shifted from managing growth to surviving in a downturn. Your goal should always be to maintain a positive cash flow. To do that in a downturn, you must manage your product mix, find cost reductions through efficiencies (Lean Thinking), and manage pricing carefully.

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