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Chapter_22_for_Class - Chapter 22 Activity-Based Systems...

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1 Chapter 22 “Activity-Based Systems: ABM and JIT”
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2 Activity-Based Systems and Management Objective 1 Explain the role of activity-based systems in the management cycle
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3 Activity-Based Systems and Management How do companies measure value?
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4 Activity-Based Systems and Management How do companies measure value? Companies measure value as revenue Customer Value = Revenue Generated Value exists when some characteristic of a product or service satisfies customers’ wants or needs
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5 Activity-Based Systems and Management (cont’d) Managers create value by satisfying customers’ needs for quality, reasonable price, and timely delivery Work with suppliers and customers Find ways of improving quality, reducing costs, and shortening delivery time View the organization as a collection of value-adding activities Use resources for value-adding activities Match resources to the operating activities that add value to a product or service
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6 Activity-Based Systems … are information systems that provide quantitative information about an organization’s activities Create opportunities to provide cost information to managers Help managers view their organization as a collection of activities Help managers improve operating systems and make better pricing decisions
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7 Activity-Based Systems (cont’d) Traditional systems (unlike ABC systems) not designed to: Capture data on activities Trace the full cost of the product Could not Isolate the cost of unnecessary activities Penalize for overproduction Quantify measures that improve quality or reduce throughput time
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8 Activity-Based Systems (cont’d) Two types of activity-based systems 1. Activity-based management ( ABM ) 2. Just-in-Time ( JIT ) operating environment Both help organizations manage activities (not costs) Can reduce or eliminate many nonvalue-adding activities Leads to reduced costs and increased income
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9 Using Activity-Based Cost Information in the Management Cycle Planning stage Managers examine their company’s value- adding activities and related costs To ensure that the company is offering quality products or services at the lowest cost
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10 Using Activity-Based Cost Information in the Management Cycle (cont’d) Executing stage Managers want to know What activities are being performed How well they are being performed What resources they are consuming Necessary nonvalue-adding activities are monitored An ABC system Measures actual quantities of activity A quantitative nonfinancial measure Accumulates related activity costs A quantitative financial measure Allows managers the flexibility to create cost pools for different types of cost objects
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11 Using Activity-Based Cost Information in the Management Cycle (cont’d) Reviewing stage Managers measure an activity's performance by reviewing the difference between its actual and budgeted costs Information used to
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