Machine hours direct labour hours units produced

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Machine-hours Direct labour-hours Units produced Batch-level Processing purchase order Processing production orders Setting up equipment Handling material Purchase orders processed Production orders processed Number of setups; setup hours Kilograms of materials handled; number of times material moved Product-level Service-level Testing new products Administering parts inventories Designing products Hours of testing time Number of part types Hours of design time Customer-level Customer Entertainment Number of customers Organization-level Gen factory administration Plant building and grounds Direct labour-hours* Direct labour-hours* © Dr. Liang H Chen, 2017
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Cost Hierarchy © Dr. Liang H Chen, 2017 Unit Level Cost Batch Level Cost Product Level Cost
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Activity-based Management (ABM) Benefits Limitations 1. ABM leads to a better process understanding of the production department. 2. It provides a detailed understanding of practices used and their effect on costs, quality, and time. 3. It helps the company assess the non-value- added activities in the production process and determine whether they can be eliminated. 4. By creating a better understanding of the organization, it helps the company to determine which particular practices need to be improved. 1. Activity-based analysis can be very expensive and time-consuming to implement. 2. Implementing an ABM system can increase employees’ stress levels and create resistance. 3. The use of an ABM system as a sole information or control system is not appropriate in every instance. © Dr. Liang H Chen, 2017
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  • Winter '13
  • DouglasKong
  • Dr. Liang H Chen

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