Effective and meaningful Profitability Analysis requires the knowledge of cause and effect relationship between all business elements, i.e. business modeling. This causal relationship understanding is only possible using management accounting tools and techniques, such as Activity Based Costing.
In traditional costing, managers are provided with misleading information about the cost, then profitability, of their products and services. It is because non-manufacturing costs are not considered and manufacturing overhead is also allocated on a single allocation basis.
In activity-based costing, all costs be it manufacturing or non-manufacturing, product or period, are assigned to activities and cost objects on a cause and effect basis, this basis are called cost driver which is not single but multiple. Meanwhile, cost objects are not only referred to as products or services, but also customers, channels, vendors, suppliers, branches, etc. This way we can analyze profitability not only based on products and services, but also on the mix of products/customers/channels, etc.
Experform enables organizations to perform an effective and meaningful profitability analysis.