Chapter 18 ABC

8/10/2019 Chapter 18 ABC

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Chapter 18


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Managers Activities

Planning CVP19Budgeting

20

CostConcepts

15

DirectingJob Order

Costing 16

Activity

Based

Costing 18

CostBehavior

15

Controlling &

Evaluating

Short Term

Decision

Making 23


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Must have better information


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Uncover potential problems or

bottlenecks before they occur.


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Value-Based system provides more relevant information

because it is more predictive and directly relates to the

decisions made than traditions systems

1. Value chain Analysis

2. ABC and ABM3. Just in Time (JIT) and Lean Environments


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Value Basedfocuses on eliminating

waste, increasing Quality & Productivity

Value Chainlook at each step in producing a

product that adds what? Ans:______

The value chain has both primary processes and

support services (ex: data processing, accounting)

Value chain

R&D, design, supply, production, sales

and marketing, distribution and customer service


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Value Added Activities

Add what? Ans: ____________

to the product or service as perceived by the

customer (are the customers willing to pay for it?)

Non-value added activities add COSTSbut do not

increase its market value. Managers eliminate non-

value added activities that are not essential

Do E5, E6 together


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ABM vs. Lean Accounting

both: analyze value and non-value activities, seek to

eliminate waste, reduce costs

Activity Based management(ABM) uses ABC

to cost productspretty complex accounting

Leanuses JIT, reorganizing activities so

performed in work cells so more costs become

direct and simplifies accounting


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Activity Based Costing (ABC)

Key: It calculatesa more accurate product cost

than traditional methods

by.categorizing all indirect costs by

activitybased on cause and effect relationships

Sothis improves accuracy in

allocating costs to cost objects (products)


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ABC Steps

1. Identify each activity

2. Estimate the costs for each activity

3. Identify a cost driver for each activity, and estimate

quantity of each cost driver

4. Calculate an activity rate for each activity

5. Assign costs to cost objects

Do Exercise 7 together, P2 in groups look over handout


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Understanding Cost Hierarchy helps

assign costs

1. Unit level activitiesperformed each time a unit isproduced (generally VC)

2. Batch level activitiesperformed each time a _______ is

produced (set up and moving and inspecting)

3. Product level activitiesperformed each time to support aparticular _________ line (design, engineering, marketingchanging)

4. Facility level activitiesperformed to support a _____general manufacturing process (generally FC)


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Its the idea that we want to have aLEAN

operating environment

Eliminate waste, focus on increasing quality and

productivity

Think: simple is better, quality is critical, how can we

always be improving, dont keep tons of inventory on

hand, what doesnt add value get rid of it, have multi-

skilled workers who adjustwhat else?So. group all the machines in one work area

called a work cell, making more direct costs


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Just in Time (JIT) and Lean

Idea: you make productsJIT

Requires all resources (materials, people, facilities)

be read and used ONLY as neededDecrease WIP, decrease materials on hand

Think.pull through system (customers ordertriggers the process of purchasing and schedulingproduction)


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Looking Ahead

1. Group Quiz Thursday with note sheet

Chapter 18 (all conceptual)

2. Test #2 next Tuesday with no note sheet

Chapters 15, 16, and 18

Look for review sheet on Ramct soon

Documents

Chapter 18 ABC