review18 - CHAPTER 18 Activity-Based Systems: ABM and JIT...

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CHAPTER 18 Activity-Based Systems: ABM and JIT REVIEWING THE CHAPTER Objective 1: Explain the role of managers in activity-based systems. 10. Activity-based systems are information systems that provide quantitative information about an organization’s activities. These systems help managers view the organization as a collection of related activities. The cost information they provide enables managers to improve operating processes and make better pricing decisions. 20. Successful business plans make optimal use of available resources. Activity-based systems help managers identify value-adding activities, determine the resources required for those activities, and estimate product costs. They are also used by managers to evaluate operating performance. Activity-based systems help managers determine the full product cost (which includes not only the costs of direct materials and direct labor, but also the costs of all production and nonproduction activities), identify actions that may reduce product cost, and determine if cost-reduction goals for nonvalue-adding activities were achieved. Managers communicate plans and performance results when they prepare reports about the company's performance for internal and external users. Objective 2: Define activity-based management (ABM) and discuss its relationship to the supply chain and the value chain. 30. Activity-based management (ABM) is an approach to managing an organization that identifies all major operating activities, determines the resources consumed by each activity and the cause of the resource usage, and categorizes the activities as either adding value to a product or service or not adding value. ABM focuses on reducing or eliminating nonvalue- adding activities. Because it provides financial and performance information at the activity level, ABM is useful both for strategic planning and for making operational decisions about business segments, such as product lines, market segments, and customer groups. It also helps managers eliminate waste and inefficiencies and redirect resources to activities that add value to a product or service. 40. A value chain is a sequence of activities inside the organization, also known as primary processes, that add value to a company's product or service. The value chain also includes support services, such as management accounting, that facilitate the primary processes. ABM enables managers to see their organization's value chain as part of a larger system that includes the value chains of suppliers and customers. This larger system is the supply chain (also called the supply network )—the path that leads from the suppliers of the materials from which a product is made to the final customer. Managers who understand the supply chain and how their company's value-adding activities fit into their suppliers' and customers' value chains can see their company's role in the overall process of creating and delivering products or services. Such an understanding can make a company more profitable. When
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This note was uploaded on 06/10/2009 for the course ACG 2071 taught by Professor Magoulis,b during the Spring '08 term at Pasco-Hernando Community College.

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review18 - CHAPTER 18 Activity-Based Systems: ABM and JIT...

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