ch12 - Cost Management ACCOUNTING AND CONTROL HANSEN...

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Unformatted text preview: Cost Management ACCOUNTING AND CONTROL HANSEN & MOWEN 12-1 12 Activity-Based Management Activity-Based 12-2 The Relationship of Activity-Based Costing and The Activity-Based Management Activity-Based 1 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. ABC is the major source of information for activitybased management. 12-3 The Relationship of Activity-Based Costing and The Activity-Based Management Activity-Based The Two-Dimensional Activity-Based The Management Model Management 1 12-4 Process Value Analysis Process value analysis is fundamental to activitybased responsibility accounting, focuses on accountability for activities rather than costs, and emphasizes the maximization of systemwide performance instead of individual performance. Process value analysis is concerned with: (1) Driver analysis (2) Activity analysis (3) Performance measurement 2 12-5 Process Value Analysis Driver analysis is the effort expended to identify the factors that are the root causes of activity costs. Activity analysis is the process of identifying, describing, and evaluating the activities an organization performs. Activity analysis should produce four outcomes: 1) What activities are performed. 2) How many people perform the activities. 3) The time and resources are required to perform the activities. 4) An assessment of the value of the activities to the organization. 2 12-6 Process Value Analysis 2 Those activities necessary to remain in business are to comply with the Activities needed called valueadded activities. reporting requirements, such as the SEC, are in this definition is the notion Implicit value-added by a mandate. that value-added activities may contain nonessential actions that create unnecessary cost. 12-7 Process Value Analysis 2 All activities other than those essential to remain in business are referred to as nonvalue-added activities. These activities fail to produce a change in the product’s state or those activities that replicate work because it wasn’t done correctly the first time. 12-8 Process Value Analysis 2 Scheduling Nonvalue -Added -Added Activities Activities Moving Waiting Inspecting Storing 12-9 Process Value Analysis Activity management can reduce costs in four ways: 1. 2. 3. 4. Activity elimination Activity selection Activity reduction Activity sharing 2 12-10 Process Value Analysis 2 Assessing Activity Performance Efficiency Quality Time 12-11 Financial Measures of Activity Efficiency 3 Financial measures of activity efficiency include: Value- and nonvalue-added activity costs Trends in activity costs Kaizen standard setting Benchmarking Activity flexible budgeting Activity capacity management 12-12 Financial Measures of Activity Efficiency Formulas for Value- and Non-Value-Added Costs 3 12-13 Financial Measures of Activity Efficiency 3 AQ 23,000 34,000 6,000 5,000 Activity Purchasing Molding Inspecting Grinding Activity Driver SQ SP Purchasing hours 20,000 $20 Molding hours 30,000 12 Inspection hours 0 15 Number of units 0 Value-added 6 standards call for elimination 12-14 Financial Measures of Activity Efficiency Value- and Non-Value-Added Cost Report Valuethe Year Ended December 31, 2006 the for 3 12-15 Financial Measures of Activity Efficiency Trend Report: Non-Value-Added Costs 3 12-16 Financial Measures of Activity Efficiency Kaizen costing is concerned with reducing the costs of existing products and processes. Controlling this cost reduction process is accomplished through the repetitive use of two major subcycles: (1) the kaizen or continuous improvement cycle, and (2) the maintenance cycle. 3 12-17 Financial Measures of Activity Efficiency Trend Report: Non-Value-Added Costs 3 Search Lock in 12-18 Financial Measures of Activity Efficiency Benchmarking uses best practices as the standard for evaluating activity performance. 3 Benchmarking against internal operations is called internal benchmarking. 12-19 Financial Measures of Activity Efficiency Flexible Budget: Direct Labor Hours 3 12-20 Financial Measures of Activity Efficiency Activity Flexible Budget 3 12-21 Financial Measures of Activity Efficiency Activity Flexible Budget 3 12-22 Financial Measures of Activity Efficiency Activity-Based Performance Report* 3 *Actual levels of drivers: 10,000 direct labor hours, 8,000 machine hours, 25 setups, and 15,000 orders. 12-23 Financial Measures of Activity Efficiency 3 Variance $ 2,000 U 9,000 F $ 7,000 F Budgeted Cost Activity Inspection: Fixed Variable Total Actual Cost $ 82,000 43,500 $ 125,500 25 Setups Level $ 80,000 52,500 $ 132,500 12-24 Financial Measures of Activity Efficiency Activity Capacity Variance 3 12-25 Financial Measures of Activity Efficiency 3 Activity capacity is the number of times an activity can be performed. 12-26 Implementing Activity-Based Management ABM Implementation Model 4 (Continued on next slide) 12-27 Implementing Activity-Based Management ABM Implementation Model (Continued from previous slide) 4 12-28 Implementing Activity-Based Management 4 Systems planning provides the justification for implementing ABM and address the following issues: 1. The purpose and objectives of the ABM system. 2. The organization’s current and desired competitive position. 3. The organization’s business processes and product mix. 4. The timeline, assigned responsibilities, and resources required for implementation. 5. The ability of the organization to implement, learn, and use new information. 12-29 Implementing Activity-Based Management 4 Why ABM Implementations Fail Lack of support of higher-level management. Failure to maintain support from higher-level management. Resistance to change. Failure to integrate the new system. 12-30 Financial-Based versus Activity-Based Financial-Based Accounting Accounting Responsibility 5 The Responsibility Accounting Model 12-31 Financial-Based versus Activity-Based Financial-Based Accounting Accounting Responsibility 5 Responsibility Assignments Compared 12-32 Financial-Based versus Activity-Based Financial-Based Accounting Accounting Responsibility 5 Performance Measures Compared 12-33 Financial-Based versus Activity-Based Financial-Based Accounting Accounting Responsibility 5 Performance Evaluation Compared 12-34 Financial-Based versus Activity-Based Financial-Based Accounting Accounting Responsibility 5 Rewards Compared 12-35 End of Chapter 12 Chapter 12-36 ...
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