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ACTIVITY- BASED MANAGEMENT Many firms that operate in today’s rapidly changing environment must not only know what it currently costs to do things, but they must also evaluate why and how they do things. Continuous improvement involves improving performance by searching for ways to eliminate waste. Activity-based costing and activity-based management are important tools in this ongoing improvement effort. LEARNING OBJECTIVES After studying Chapter 12, you should be able to: 1. Describe how activity-based management and activity-based costing differ. 2. Define process value analysis. 3. Describe activity-based financial performance measurement. 4. Discuss the implementation issues associated with an activity-based management system. 5. Explain how activity-based management is a form of responsibility accounting, and tell how it differs from financial-based responsibility accounting. KEY TOPICS The following major topics are covered in this chapter (related learning objectives are listed for each topic). 1. The Relationship of Activity-Based Costing and Activity-Based Management (LO 1) 2. Process Value Analysis (LO 2) 3. Financial Measures of Activity Efficiency (LO 3) 4. Implementing Activity-Based Management (LO 4) 5. Financial-Based versus Activity-Based Responsibility Accounting (LO 5) I. THE RELATIONSHIP OF ACTIVITY-BASED COSTING AND ACTIVITY-BASED MANAGEMENT A major focus in the new manufacturing environment is eliminating waste. Often process improvement is a key method of eliminating waste. Processes are made up of activities that are linked to perform a specific objective. In order to improve processes, a firm must improve the ways in which activities are performed. The management of activities, not costs, is the key to successful control for firms operating in continuous improvement environments. Activity-based management (ABM) is a systemwide, integrated approach that focuses management’s attention on activities with the objectives of improving customer value and the profit achieved by providing this value. ABM has two dimensions: a cost dimension and a process dimension. The cost dimension provides cost information about resources, activities, and cost objects of interest. The objective of the cost dimension is improving the accuracy of cost assignments. The process dimension provides information about what activities are performed, why they are performed, and how well they are performed. This objective of the process dimension is cost reduction. Exhibit 12-1 in the text presents the two-dimensional ABM model. II. PROCESS VALUE ANALYSIS Process value analysis (PVA) is fundamental to activity-based responsibility accounting. It focuses on accountability for activities rather than costs. It emphasizes the maximization of systemwide performance instead of individual performance. Additionally, process value analysis is concerned with driver analysis , activity analysis , and performance measurement . 1
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This note was uploaded on 02/08/2010 for the course ACTG 3000 taught by Professor C during the Spring '10 term at Oregon State.

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